Review of 2010 / Plans for 2011

A few years ago on BBC2 in the UK there was a programme called Dave Gorman's Important Astrology Experiment. I don't know if you watched it but the concept behind the series was that Dave would follow exactly what was recommended for his star sign in a selection of horoscopes, and then see how that affected his happiness. For measuring happiness he used the triad of Love, Health and Wealth. happiness-triad.jpg

It was a funny series, but the reason I mention it is that I've always thought that using the happiness triad is a really good tool for life planning. If you think about it, most new year's resolutions will fall into one of the three boxes.

I thought I'd share a few of my plans for 2011 and also look back at how 2010 measured against my own happiness triad.

Review of 2010

I'll start with last year. For Love, that's got to be a big positive because me and Rach finally tied the knot. Lauren makes me happy every day. All is well in the Haines household on the Love front.

As for Health, that's been a mixed bag. I had no real health problems last year, with the exception of a few warning signs that it was time to slow down. I managed to lose a few pounds before the wedding, and then proceeded with much fervour to put them straight back on again during the month I had off work for the wedding and honeymoon, and 3 weeks for xmas.

The warning signs were mainly due to too much drinking. I don't drink a fraction of what I did when I was in the Navy. Maybe that's the problem? In the Navy drinking was pretty much mandatory so my tolerance to it was much greater than it is today. In 2010, I didn't drink that often, but when I did it tended to be binge drinking. I had some really good nights out which involved drinking far more than is good for you, and on a few occasions i started to develop numbness on one side of my face after a drinking session, or during, which isn't a good thing. A kind of Bell's Palsy apparently, according to a nurse friend of ours.

So on the health front it was a mixed bag.

Finally there's Wealth. I look at wealth in two ways - financial wealth and wealth of knowledge.

Financial wealth was going quiet well for most of the year. I've managed to maintain my 4-day a week job while steadily, but not greatly, growing the IPChitChat business. Although I still don't draw a salary from IPChitChat we did make a few payouts for ourselves during 2010 as a return on investment. This meant we were in a lucky position that Rachelle was able to give up her job and come and work from home for the business.

All was going well with the finances up until the wedding. As much as you plan and budget, it always ends up costing more than you originally planned. And so it proved. Even though it was a relatively cheap wedding by comparison to the standard these days, we've still left ourselves with quite a bit of debt which I'll probably be paying off for the next 2 years! This means that coming into January Rach has started looking for a part-time job again just to help us through this sticky patch. It's funny how there seems to be an inverse relationship between love and wealth when it comes to getting married!

In terms of wealth of knowledge, I feel that this is where I made the most gain in 2010. I was very lucky to travel quite a bit during 2010 and travel does indeed broaden the mind, even if I did spend most of it in bars! Similarly, I maintain an interest in lots of different subjects and read extensively. I don't know about you but I find as get older my thirst for knowledge increases exponentially. Importantly I learnt an enormous amount that will contribute to growing my business.

On the business side of things I may look back at 2010 as a year of procrastination. There was no real major achievement but like I said, I did learn a lot. It's amazing how much you learn by doing the wrong things. I spent far too much time during 2010 just trying to get things to work, rather than concentrating on the big picture. I don't know how many hours I lost messing about with technical things that really should be left to someone who knows what they're doing. I've learnt that lesson. At the same time, those hours spent learning the technical side of business will help me in the future. I'll explain more when I discuss plans for 2011 below.

So all in all not a bad year. Am I happier at the beginning of 2011 then I was in January 2010? I'd say yes, I am.

Plans for 2011

If we look at the Love side of the happiness triad, well I'm married now so I suppose it's just downhill from here! Just kidding. The emphasis for 2011 needs to be on life-balance. It's very easy to just get obsessed with work and forget that there's other people in my life. Even though I have a job and a separate business, I need to be conscious of the fact that i need to put some time aside as family time. All work and no play makes Jack a dull boy, as the saying goes.

Health, now that's a continuing battle. I know I've probably said this the last 10 years in a row, but this is the year when I get really fit and healthy. Honest.

Wealth. I spent most of 2010 having my finances under control. My credit card balances were 0 because i paid the balance off in full each month. That was until the wedding. 2011 is going to be a frugal year. I've already made a concerted effort to reduce expenses. The next goal is to increase income, and the way I'm going to do that is through the business.

I've now launched netcloudsecurity.com which will hopefully contribute something, but that's more out of a response to events. The problem with providing services, of any kind, is that the amount of $ output you get from it is entirely dependant upon the number of hours you put into it. The ultimate goal is surely to create passive income, where you create something that continues to generate revenue without further work from yourself.

In the next few weeks I'll be launching another website, which will be my main focus of attention for the 2011. This website draws on my experience as a PCI QSA and will hopefully be something that will help many businesses and individuals.

They key business lesson that I've learnt from 2010 that I will apply to this year is that I definitely need to focus on the core activities that generate revenue. As I've said, far too much time was spent in 2010 troubleshooting technical problems and learning new technical skills. For example, I spent many a hour last year building my new PCI site using the Drupal Content Management System (CMS). Drupal is a fantastic CRM and in the right hands, can do everything you want it to. To save a bit of money and due to budgetary constraints, I decided to build the entire site myself. Whilst I got the majority of it built I spent hours if not days messing about trying to get some of the basics working, such as displaying my content correctly in RSS feeds.

Last week I finally gave up on Drupal and the new website will be shortly launching in Wordpress. The Wordpress CRM is great for getting sites up and running very quickly. It perhaps doesn't offer all of the features that Drupal does but who cares, it's content that's important. I realise that now.

For IPChitChat we had some great success with outsourcing, and we're now at the point where if we want anything doing technically with the website we'll simply outsource it. We've finally found some developers on Elance.com that we're really happy with and trust. The developers we chose are a company in Vietnam. We placed a number of projects on Elance with them last year and because they're a) extremely affordable, b) professional, and c) quick to respond, we'll be using them for the majority of our technical work in 2011.

You may think that you are saving money by doing it yourself but you're really not. I now follow my own advice that I've spouted many times before - you need to put a price on your time. If it takes you 2 weeks to do a job that an external developer can do in 2 days, is it really saving money to do it yourself?

As an example, we had 3 jobs that we asked our developers to do last week. They did the entire work in 2 days for a total cost of $175. It would have taken me a week at least. A week of my time is worth far more than $175.

I said previously that all the lost time in 2010 doing technical work was not entirely mis-spent. This is because having a certain level of knowledge really helps when you outsource work to others. For instance, If I decide to build any new sites in Drupal and outsource the work, I'm confident that I'll be able to draw up detailed specifications for the work, and be able to properly vet what gets delivered. There's also lots of small technical jobs that I'll be able to do quickly myself without having to outsource it.

In summary, for 2011, the goal is to maintain the Love score, but improve on Health and Wealth.

I'm starting an Internet business - Part 2: The Lifestyle 2.0 Model

A few days ago I wrote about how I'd seen the light in terms of work and lifestyle after reading 'The Four-Hour Work Week' by Tim Ferriss.

In part 2, before I go on to describe some of the ways that I can generate passive income - the first step towards achieving the dream lifestyle - I'm going to expand some more on the general concept of going from where I am now (which I'm going to call the Lifestyle 1.0 model) to where I want to be (which I'm going to call the Lifestyle 2.0 model).

I've been using what I've learnt recently to generate my own strategy for achieving my goals. I believe it's important to develop the strategy first, as this will:

  • Reduce the likelihood of failing at the first attempt;
  • Give me something to refer back to and provide motivation when things don't got as planned; and
  • Give me clear milestones that I can use to track progress towards my goals.

The strategy that I've started to develop is called my Lifestyle 2.0 model. I can't profess that the model is particularly revolutionary; it is something I've developed based on inspiration from 'The Four-Hour Work Week', as well as other books I've read such as 'Rich Dad, Poor Dad' by Robert Kiosaki. My model takes the best concepts from these books, tunes them slightly to leverage the 'web 2.0' revolution that is happening right now, and also takes into account my experience and knowledge of risk management gained from my career to date in Information Security.

The purpose of my Lifestyle 2.0 model is to show how I'm going to use a few basic business and financial principles, as well as a commitment to taking advantage of the web 2.0 opportunities, to help me achieve my goals of gaining financial freedom and escaping the 9-5 so I can pursue my dreams full-time.

To understand my Lifestyle 2.0 model you first need to understand the Lifestyle 1.0 model. You will easily recognise the Lifestyle 1.0 model because it is what most of us live today. I've split the model into separate sub-models, including a 'cashflow' model and a 'living' model.

Lifestyle 1.0 Cashflow Model

This is a basic diagram that I've created of the Lifestyle 1.0 cashflow model that most of us can relate to:

The Lifestyle 1.0 Cashflow Model is a process flow that determines our financial wealth. The Lifestyle 1.0 Cashflow Model is the model that most of us follow, but also the reason why most of us will never be rich, or at the least will never achieve financial freedom.

Here's how it works:

  1. Our sole income is from a salary. The salary comes from being an employee. The salary is dependant upon us providing x amount of effort and x amount of hours per week. The income we receive from our salary is paid after tax has been taken off.
  2. Most of our income is spent on expenses. Our expenses is made up things such as living costs - bills, groceries, general expenses, etc, - but also payments to discharge our liabilities (debts such as a mortgage, credit cards, loans, etc).
  3. If we have anything left over after expenses we may put this into a savings account. We can count a savings account as an asset because it is working for us - it is generating interest.

Knowing the difference between an asset and a liability

Here's a quick explanation of these terms, which is fundamental to understanding the model:


Asset
: An asset is something that puts money into our pockets. Most of us wrongly consider our house as an asset. In most cases, an house is a liability not an asset because it takes money out of our pockets (mortgage payments, insurance, upkeep, etc). An house is only really an asset if you rent it out to provide an income, or you cash in on any equity that may be in the house, i.e. you sell the house and there's money left over after paying off the mortgage, or you re-mortgage the house to release some equity and you use the released equity to generate income that is greater than the proportion of the expenses inccured from the increase in liability payments (increase in mortgage).

Liability: Conversely, a liability is anything that takes money out of our pockets. One of the biggest liabilities that most of us buy is a car. A car loses value as soon as we get into it and continues to take money out of our pockets for as long as we keep it. A common misconception is that a car, like a house, is an asset. It's not because it's not making us any money. Also, unlike an house, a car will never become a real asset because it won't increase in value. A key principle in the 'Rich Dad, Poor Dad' book is that rich people put their money into assets, wheras the middle class put their money into liabilities which they think are assets.


Lifestyle 2.0 Cashflow Model

This is a basic diagram of the Lifestyle 2.0 Cashflow Model, which I explain in more detail below:

Here's how it works:

  1. Our income is derived not a from a salaried job, but from 'income generating assets'.
  2. As a business owner, we pay tax after we pay ourselves, and after expenses. The beauty of being a business owner, rather than an employee, is that we can claim a proportion of our expenses as a business incurred expense. As an Internet business owner, we work from home, which means we can claim a proportion of our household bills as a business expense. Because we're a business owner, we pay ourselves the minimum wage so as to only pay the minimum amount of income tax. The rest of our income from our business is derived from dividend payments. Of course, we also have to pay corporation tax, but corporation tax is at a lower rate than income tax, and corporation tax only gets paid on profit made after expenses. Although we pay both income tax and corporation tax, our overall tax burden is actually less than a salaried employee in the Lifestyle 1.0 model.
  3. Most of our income goes back into our assets column. As our assets grow, so does our income, which in turn grows our assets. This cycle continually increases our overall wealth.
  4. We buy assets and avoid liabilities. If we want a luxury such as an holiday, nice car, etc, we make sure it is paid for by our assets. We must not incur liabilities due to luxuries.
  5. If we do incur liabilities, it is to buy assets. However, we use risk mitigation strategies to ensure that the income generated from assets financed by liabilities will always be greater than the expense of the liability that paid for the asset.
  6. Although we do buy traditional assets such as property and shares, most of our money goes into creating new Internet business opportunities - we understand that we have the potential to make more money in the short-term by capitalising on this thing that is being called 'web 2.0', than on traditional assets.

A real asset makes money while I sleep

In my model, an asset is only really an asset if it makes money for me while I sleep. A day job is not an asset because it is dependant upon my contribution, both in time and effort, and once I stop contributing, so does the income. Whereas if done properly, a Lifestyle 2.0 asset will make me money, and then continue to make make me money without requiring any further effort or time on my part - it should be self-generating.

How do you measure wealth?

Am I wealthy if my net worth is $1 million. What about $2 million? In my model, the measure of my wealth is not how much I am worth in the traditional sense. In part 1 I suggested that a man earning $250,000 a year but working 80-hour weeks is actually worse off than a man only earning $50,000 but working a ¼ of the time.

In my Lifestyle 2.0 model my wealth is simply determined by the following calculation:

  • If I was to stop working today, how long could I continue with the same standard of living before I would have to work again?

At the moment, because I'm living the Lifestyle 1.0 model and have only just begun the Lifestyle 2.0 model, the answer to my wealth question is only a few weeks. So the success of my Lifestyle 2.0 model will be measured by calculating my wealth in days, weeks, and years, not in dollars.

That's it for part 2, in part 3 I will describe how my Lifestyle 2.0 Cashflow Model will be used to achieve my Lifestyle 2.0 Living Model.

I'm starting an Internet business!

The fist step is complete. We’ve now living in the location to have the dream lifestyle. The next step is to actually have the dream lifestyle.

For the last few weeks I’ve been doing a lot of research into the different ways I can use the Internet to make money. I’m not talking about a bit of pocket change. My goal is to make a good living online, giving us financial freedom and liberation.

A lot of ideas have been forming in my head based on things I have learnt from different blogs and podcasts that I subscribe to, and books that I’ve read. I’ve known for a long time it’s possible to make good money on the Internet, the thing I’ve been struggling with is exactly how.

Which is better: working 80 hour weeks and earning £250,000 a year, or working a ¼ of the hours and earning £50,000 a year but having the complete freedom of when, where, and how to live?

I’ve read quite a few books in the past about starting a business, getting rich, becoming a millionaire, etc, but none have had such a profound effect on me as The 4-Hour Work Week by Tim Ferriss.

As per the title, in his book he explains the steps he took to build passive income so that he only has to work 4 hours a week. He spends the rest of his time pursuing things he loves, and some of the things he does with his time are truly amazing. The beauty of this book is that it explains how you can leverage new systems and business models on the Internet to make money, while only working a few hours of the week.


Here are some of the key concepts in the book which I’ll explain in more detail below, I’ll also try and explain how I plan to put the concepts into action:

  • Build passive income streams
  • Eliminate non value-adding work and automate as much as possible
  • Outsource

Build passive income streams

They key to financial freedom and liberation is to build income streams that make you money again and again, even when you’re not working. Like many people, at the moment I make money based on the hours that I work. It’s simple: if I don’t work I don’t get paid. So the key is to develop something that, once developed, does not require my time, effort or even presence to keep it generating revenue. I’ll get paid when I sleep!

Once established, in order for me to reach the goal of having income streams that generate me money without my time, effort, or presence, I then need to take the next step – eliminate non value-adding work and automate as much as possible.

Eliminate non value-adding work and automate as much as possible

There’s quite a lot of detail about this in his book which I’m not going to repeat here. I was familiar with a lot of these principles before as I’ve been on a Six-Sigma course, which shares a lot of these principles. In particular the Pareto principle, i.e. the 80/20 rule. This is the principle that you generate 80% of your revenue from 20% of your work, so the goal is to concentrate on removing the 80% of your work that doesn’t generate revenue and build on the 20% of the work that does generate revenue.

This is just one of the principles, there are many more. Many of which I found I could easily relate to.

Outsource

This was the best revelation for me. After working for outsourcing companies I’m more than familiar with how this works. What I didn’t realise however, it’s not just the big companies that can outsource work to India – I can and you can too! There are ‘Virtual Assistance’ companies established in India and China that you can outsource tasks to for as little as $5 an hour. You can outsource anything, and I mean anything. As long as it’s a task that doesn’t require their physical presence.

Take a look at GetFriday.com to see what I mean.

When I started writing this post I didn’t realise how large it would be and how much I had to write about. So I’m going to leave it here and break the rest of the post up over the next few days. In my next post I’ll explain some of the steps I’m taking to put these concepts into action, and the mistakes I made with my first Internet business.

Read I'm Starting an Internet Business - Part 2: The Lifestyle 2.0 Model