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Education: It Can’t Be Taken Away

Hey guys,

I’m starting a new job in a little over a week.  During my layoff, I spent my time learning how to make iPhone apps.  See here and here for the shameless plugs.  Alas, there isn’t as much money in iOS development as you’d think.  Don’t get me wrong, they both sell pretty well.  They just don’t sell well enough for me to live on at the moment.  But that’s cool.

My new job is doing iOS app development for a small local business.  I got the job because I taught myself how to make iOS apps.  That, and I brought two apps to market on my own.  I know stuff that is pretty valuable to know these days.

If you want to get ahead, it’s important to know stuff.  What you need to know varies according to your circumstances.  Being able to execute on that knowledge is important, too.  Just not as important as having the knowledge.  A job can be lost.  Tools can be stolen.  Equipment can fall apart.  Knowledge of how to do something can’t be taken away.  As long as you know how to do something, everything else can be worked out.

I used to drive tour buses for a living.  Admittedly, it wasn’t much of a living.  It was work, though.  And it was work that couldn’t be done by just anybody (CDL licenses are not that easy to come by.)  To this day, if everything else fell apart and I had to start from square one, I can make a living driving a bus.

Years later, I finished my degree and now I know how to write software.  I may have turned in my company computer when I was laid off last December, but I didn’t have to turn in my education and experience with it.  I was able to leverage my education and experience into some modest side income and a new job.

While having a formal education will tilt the numbers in your favor, you don’t necessarily need one to live a satisfying life.  There’s all kinds of ways to learn stuff.  Especially these days.  As long as you’re acquiring knowledge on a regular basis, you can’t help but succeed.


Announcing the Save Sense iPhone App

Hey guys,

Just wanted to let you know that I have recently released the Save Sense iPhone App.  It’s a lightweight app that helps you figure out the best value for your dollar when shopping for multiple sizes and units of measurements.  Go here for deets and the link to purchase from the app store.

Thanks, guys.


Change is Hard

Letter to my Struggling Baby Business (via unicornfree)

Although this is not strictly about personal finance, the general theme is applicable to anyone going through a major change.  Be it personal finance, healthier living, or starting a business.


Securities Investing: Keep it Simple

I’ve recently been looking at my stock portfolio.  I’m going to be back to work soon and I want to get a jump on what I want to buy when my full income kicks back in.  I’ve also been paying attention to the personal finance blogosphere again.  Nothing much has changed.  People who are talking about stock investing are really just talking about gambling or they’re talking gibberish.  So I thought I’d share a few details about my portfolio.

I started my portfolio around April 2010.  I spread $5,000 over six different stocks and have been making regular buys up until my layoff last December.  As of yesterday (Feb 24, 2012) I am approximately 13.5% up with an approximate 7.4% annualized rate of return on 10 individual stocks.  In an insanely volatile year for the market, I still managed to make a few bucks.  How did I do it?

I kept it simple.  I don’t get into options trading.  I don’t do forex trading.  I don’t do arbitrage.  I don’t do derivatives.  I don’t day trade.  I don’t speculate.  I don’t do any of the things that are really just gambling on the market.  I keep my risks low by being a strict value investor.

As a value investor, I follow the axiom of “Buy great companies at attractive prices.”  Of course, the trick is figuring out what a great company is and then what an attractive price is.

Figuring out the greatness of a company generally has a qualitative and quantitative component.  The quantitative component is the answer to the question, “Does the company make money consistently?”  The qualitative component is whether the company has an enduring competitive advantage.  When both of these components are affirmative, you’ve found a great company.

That leaves the question of what an attractive price is.  First, you need to find the intrinsic value of the company.  Once you’ve figured that out, you can figure out what discount you are comfortable with.  I generally require at least a 30% discount against intrinsic value.

In my opinion, this is the minimum amount of research you need to do when selecting individual securities.  If you aren’t willing to do this, you should just stick to index funds.

If you are willing to do that kind of research, take a look at the books listed in the Amazon affiliate box to your right.  Those are the foundational books I built my investment strategies around.

Thanks for reading.


To LLC, or not to LLC? That is the Question (Part 2)

In the previous post, I talked about a friend who asked if they should set up an LLC for investing.  I outlined a barebones explanation of what an LLC does and what it can do for you.  Read that first.  If you decide you need an LLC, here’s how to do it.

  1. Make sure you can actually register as an LLC.  There are still a handful of states that do not allow single-person LLCs.  If you live in one of them, you’ll have to find someone you trust to go into business with you.  Always, always, always do your own due diligence.  Like I said in the previous post, I am not a legal or tax professional, so it would be foolish to do anything solely on my say-so.  The best I can do is share my experience, your mileage may vary.
  2. What are you going to call it?  Not quite as simple as it sounds.  Each state carries a registry of company names that are currently licensed to do business.  Once you’ve chosen a name, check with your state to make sure the name is available for use.  In Iowa, you have to send a name reservation document along with a fee.
  3. Fill out the paperwork.  Depending on your state, setting up an LLC is a matter of sending in a document that declares your LLC.  In Iowa, it’s called a Certificate of Organization.  It’s basically a document that outlines the purpose of the company (to make money), the members entering into the agreement, and the name and information of the person who is responsible for making decisions (the managing member/partner.)  There are all kinds of resources online that charge money for this document.  But all you really need to do is go to Staples.  Office supply stores will have LLC packets that you can fill out.  I started Bag of Holdings, LLC with an LLC packet from Staples for 30 bucks.
  4. Create an LLC agreement.  Even if you are going to be the only member of your LLC, it’s a good idea to put together an LLC agreement.  An LLC agreement outlines things like frequency and amount of disbursements, the decision making process, and most importantly, the terms of dissolution.  The packet I used to start BOH had a LLC agreement template included.
  5. Get your paperwork notarized and send it in with your fee.  Find your local notary public and get them to sign off on it.  Send the paperwork in for both the Certificate of Organization and the LLC agreement.  You don’t strictly have to send in the LLC agreement, but it’s useful to have it on file with the state.  Make sure you pay your fee to avoid having to go though it all again.
  6. Set up a bank account.  For bookeeping, you’ll need at least a checking account in the name of the company.  Depending on the bank, you just need a notarized copy of the Certificate of Organization identifying you as the principal agent of the LLC.  You’ll use this bank account as the bucket for your income streams.
  7. When you get your copy of the Certificate of Organization packet, you are ready to go.

You now have the basic information you need to start setting up an LLC.

Thanks for reading.


To LLC or not to LLC? That is the Question (Part 1)

I was recently asked about how to start up a LLC.  A friend is thinking about investing and is curious about how to set one up.  I figured I’d share my thoughts on the subject and relate my experiences as the sole member of Bag of Holdings, LLC.

*Disclaimer:  I am not a lawyer or tax professional.  It would be foolish to do anything based solely on what I have to say about the subject.  Also, my experience has to do with a single-member LLC.  There are other configurations that may be more useful to you (LLP, S-corp, C-corp.)  I may talk about those at a later date, but not on this day.

Before getting into HOW to start a LLC, a more important question is “SHOULD I start one?”  The best way to determine that is to look at what an LLC does and doesn’t do.

  • A LLC does provide personal asset protection.  If you are starting a business, a LLC gives you a solid demarcation between your business assets and your personal assets.  If something goes wrong with your business or it gets in trouble for whatever reason, only the assets held by the LLC can be attached.  Your personal assets cannot be used.  For example, let’s say you own a deli through a LLC.  If someone gets food poisoning from your egg salad sandwich and dies, their survivors can sue the deli and will probably take all of the assets held by the deli.  But they can’t take your personal assets like your car, home, retirement fund, etc.  If you own that deli as a sole proprietor, then everything you own is fair game.
  • A LLC does provide flexibility.  When I first started Bag of Holdings, all I was prepared to do with it was invest.  I knew I was going to branch out sooner or later, even if I didn’t know what that was going to look like.  With BoH, I have an infrastructure set up to support this diversification.  For example, I just published an iPhone app and I have another one in development.  I have a very modest affiliate income through the websites I currently publish.  I have dividends through my stock portfolio.  I do occasional consulting work for iOS apps.  I am also working on a real estate investment that should provide a modest return.  It’s nice to have a single bucket to pour my different income streams.
  • A LLC does NOT provide complete asset protection.  When I was researching creating a LLC, I came across countless stories of people who use their LLC as a haven for personal assets.  Everything was paid for out of LLC funds and everything they “owned” was in the LLC’s name.  Many people were also under the impression that if they got sued personally, the LLC would protect their assets.  I did some more checking and found out that this is not the case.  The asset protection is only one way.  The LLC protects your personal assets from your business, it doesn’t protect your business assets from you.  In the eyes of the law, your LLC is a personal asset.
  • A LLC does NOT provide special tax privileges.  A LLC is considered a pass-through entity when it comes to taxes.  That means whatever profit you make under your LLC is reported on your personal taxes.  If BoH makes $1,000.00 this year, I’ll have to report it as income above and beyond whatever my salary turns out to be and pay the taxes on it, even if I don’t withdraw a penny from the BoH bank account.  I’ve read about all kinds of ways that people have tried to use the LLC as a way to manage their taxes, from buying a computer through the LLC and leasing it back to themselves to leasing a car under in the LLC’s name so it can be written off.  I don’t recommend any of those of things.  First, no matter what anyone says or how long they get away with it, it smells less-than-legal and should be avoided.  Second, it introduces a whole level of complexity to something that you want to keep as simple as possible.  Don’t get me wrong, you will be able to write off legitimate business expenses like web hosting and design work.  It’s just not a good idea to get fancy about it.

Now, with all that in mind, should you create a LLC?

For my friend who wants to use a LLC just to buy securities, I’d advise against it.  Owning stock already has asset protection baked into it and it doesn’t provide a tax advantage over just having a brokerage account in your name.  Better to save the filing fees.

If you are starting a business or investing in something like real estate that doesn’t have built-in asset protection, it’s the first thing you should do.  Putting that wall between company assets and personal assets is essential.

If you’re looking to game the system, don’t.  Using a LLC to hide your personal assets and/or avoid taxes, no matter how clever you think you are, is a suckers game.  The IRS (or your soon to be ex-wife’s lawyer) is smarter than you and has a way bigger hammer.

Thanks for reading.  Questions, comments, criticisms, things I missed or am just wrong about, leave a comment.


How to Use (and not use) Your Time

Seen on facebook:

Has offically hit 1 million gold in Skyrim!!!!

For those of you not interested in what young men do with their time, Skyrim is a giant video game.  As a comic book geek, I must sometimes sit through rambling descriptions of just how awesome this game is.  Apparently it’s really expansive and involved and the graphics are “amazing.”

Skyrim was released to much ado around the middle of November 2011.  During that time, I was working on my Wrestling Scorecard iPhone app, ultimately released at the end of January 2012.

While my friend above was making millions in the Skyrim adventuring business, I have sold a modest number of units for my app.  And I didn’t have to spend hours plugged into a video game to do it.

Therein lies the secret to financial stability.


Paranoia is not an Investment Strategy

Warren Buffett:  Why Stocks Beat Gold and Bonds

Over on Y-Combinator, the gold bugs and liberterian survivalists are going bugnuts about anyone, even a seasoned investor like Warren Buffett, daring to say that gold is not the best investment opportunity since sliced bread.

In my opinion, based on nothing but my layman’s observation, the money has long been taken out of gold.  The growth rate of prices are more a reflection of political paranoia than any rational valuation.  Political opinioneers working at the behest of their paid sponsors have been whipping this paranoia up for years.  After all, who do you think is supplying the product that the gold bugs and libertarian survivalists have been buying?

If you’re buying gold because you think the price’s growth rate will be sustainable, I’ll just say that timing the market is a fools game.

If you’re buying gold because you think society is on the brink of collapse, cash out some gold to get therapy.  And it probably wouldn’t hurt to stop listening to people who are sponsored by gold companies.


The Baggage of Being Poor

I grew up poor.  This article pretty well sums up the mindset that plagued me for 30+ years.

The 5 Stupidest Habits You Develop Growing Up Poor


You Probably Don’t Know What You Think You Know

If you don’t mind some vulgarity, this article is pretty good:  6 Logical Fallacies That Cost You Money Every Day

To most people, Logic means “Anything I say is logical.”  But if I put a truth table in front of them or asked them to tell me what the slippery slope fallacy is, they’d just stare blankly.