Posted by: Clayton Makepeace
September 17, 2007
Issue #232

The Best Advice
My Father Never Gave Me

Dear Business Builder,

When you read this, The Redhead and I will be recovering from what I hope will be a wild weekend in Key West.

Last Thursday, we joined some 40,000 bikers who descended on The Conch Republic for a four-day blow-out called The Key West Poker Run.

After three days doing “The Duval Crawl” – drifting through Sloppy Joes, Captain Tony’s, The Hog’s Breath, The Green Parrot and countless other watering holes with my fellow biker scum (and a bunch of proctologists, lawyers and accountants in brand-new leathers pretending to be biker scum) – we’re probably moving pretty slow.

This morning, we’re packing up our Harleys for the 139-mile ride up to Miami, then jumping on a plane for a quick flight to Atlanta (watching the other passengers as we settle into First Class in our ratty old scuffed up biker gear is always fun), then a three-hour drive to our home in the mountains of Western North Carolina.

Since I’m writing this the day before we left (last Wednesday) – and since this is the first thing that has even remotely resembled a vacation for me in oh, I don’t know … FOREVER …

… I’m not quite as focused as I like to be when I sit down to write to you.

Nevertheless, here I am, doing my dead-level best to give you a thought or an idea or an inspiration or something that will make the few minutes you spend reading this the best investment of your week.

So what do you want to talk about?

What’s that you say? You want to talk about money?

What a coinkie-dinkie – thats what’s been on my mind, too…

I’ve never written about this before, but …

In 1971, I produced and directed weekly TV shows for a small non-profit organization for $8,000 a year. Then, a bigger non-profit in California saw my name on the credits and bumped me to $12,000. And later, when I took my first ad agency job, it was for the princely sum of $15,000 a year.

That’s between forty and seventy thousand a year in today’s dollars. (Yes, the U.S. dollar really has lost about 80% of its buying power since then. And that’s according to Washington’s phony-baloney inflation numbers. The truth is far worse – but puh-leeze: DO NOT get me started!)

Now, if you think a family of four trying to get by on $40,000 to $70,000 a year in L.A. today would be in desperate straits, you’d be right. Rent, food and a car payment left us pretty much broke at the end of the month. There was never a penny left over for niceties; let alone for luxuries.

Soon though, I began freelancing and things got better. And being in my 20s, I did what every poor boy in his 20s does when he gets a little spending money in his jeans: I spent it.

Well, that’s not exactly true. In fact, I used the extra money as a down payment on all the things my family had previously been denied. Still nothing extravagant, mind you – just a decent house in a lower-middle-class neighborhood, some more presentable clothes, a new Chevy, a second TV for the master bedroom, a fair-to-middlin’ stereo system, a night on the town every now and again – and of course, my first motorcycle.

Oh yeah: And I got a couple of credit cards – “Just for business travel,” you understand – which promptly got maxed out as the wife and I bought all kinds of dumb things we didn’t need.

Point is, for me in those days, a $10,000 windfall was just enough to get me $100,000 deeper in debt.

Now, if I hadn’t been so poor for so long … if I had been just a little bit brighter and more disciplined … I could have used that money to reduce my cost of living by paying off a debt or two.

Or, at the very least, I could have socked it away for a rainy day.

But n-o-o-o. I used the extra money to build my own little mountain of debt and to push my overhead ever-higher.

The Optimist’s Curse

Freelance copywriters – self-employed writers – are, by definition, entrepreneurs. And entrepreneurs are, by our very nature, optimists.

We believe no matter how well we’re doing today, we’ll do even better tomorrow. After all – if we didn’t believe that, what’s the point of being an entrepreneur in the first place?

The only problem is, stuff happens.

Like recessions. Like losing your best client. Like getting sick and being unable to work. Like family problems that make it impossible to concentrate.

And you can trust me on this: When that stuff happens – and when your income takes a nose dive – those monthly bills do not stop coming.

Next thing you know, the bill collectors begin harassing your significant other. Then, your significant other begins harassing you. Next thing you know, she or he is demanding that you quit this silly entrepreneurial thing and get what is commonly known as “a real job.”

That, of course, creates major stress – one of the most notorious creativity killers known to man.

More importantly, it puts you into a position where you may be tempted to overbook yourself … rush through each job as quickly as possible just to get paid … and wind up producing a string of flops with the potential to turn you into a leper in your chosen field.

I’ve been dumb and I’ve been smart.
Smart is better.

Now, a LOT of other people were involved, so I’m not going to gore you with the bory details. But it was one such crisis that led to my own financial epiphany.

Suffice it to say that I am now much older and much wiser than I was back then. So when a close relative began his own business a few years ago, I sat him down, told him all of the above, and then what follows.

Of course, being a poor boy in his 20s with spending money in his jeans, he gleefully ignored my sage advice, and he’s still paying the price. But that’s OK. If I’ve learned anything in my 55 years on this planet, it’s that pain is the best teacher. He’s learning his lessons well. And he’s a great kid; I have every confidence he’ll get on famously in the years to come.

So this week, in an exercise that is almost surely to prove to be – like many second marriages – the triumph of hope over experience, I’m going to tell you what I told him.

Now it’s only fair to remind you that – although I often play one when ghosting copy for my clients – I am NOT a real economist, an investment advisor or a financial planner. Just an old guy who learned this stuff the hard way – and still has the scars to prove it.

And so, although you should probably talk to a qualified expert before you settle on your overall financial strategy, I’m hoping these four little rules might help a few of my beloved young readers avoid having to abandon their entrepreneurial dreams …

… And ensure you never find yourself picking out a cubicle at some 9-to-5 sweatshop and then spending the rest of your life as a wage slave making some other guy rich:

FIRST, Pay Yourself First: After set-asides for state and federal taxes, skim the top 10% off of every check you get and sock it away. When you can afford more, pay yourself more.

This is your rainy-day money, so don’t stop until you have at least six months’ living expenses socked away. I prefer to have a full year in the kitty.

Why? Because you never know what’s coming down the pike. I’ve seen breaking news events or a recession cause response rates – and my royalties – to crater for months at a time. Heck. I’ve seen response rates in entire market segments plunge for years at a time!

In times like those, your mind needs to be clearest so you can market your way out of the slump. If nightmares about going bankrupt are keeping you up nights, writing your way out of the mess by producing great copy is pretty much impossible.

So my advice to the young bucks (and does) entering our biz is, build your rainy-day savings first. Before you begin saving for retirement. And definitely before you begin trying to grow your wealth by investing in the stock market.

Having a nice, plush pad to fall back on can free your mind to focus on the challenges you’re facing. That can dramatically improve the quality of your marketing strategy and copy – as well as your chances for coming through tough times smelling like a rose.

SECOND, Keep Your Rainy-Day Money Safe: Money you keep in a cookie jar or mattress too often winds up being blown on pizza or to pay the babysitter. Making that money a bit of a challenge to get to gives you time to cool off and wise up before using it.

My advice: Open a brokerage account and sock that money away in something safe – like a mutual fund or Exchange Traded Fund (ETF) that invests in U.S. Treasuries. The interest rates they pay stink, but at least they keep you ahead of the (official) U.S. inflation rate. And because they’re guaranteed by the U.S. government, you can never lose a single penny you invest in them.

If like me, you worry about how Washington scumbags are debasing our currency – gutting our buying power – you may also want to buy some gold or silver bullion coins and sock them away in a safety deposit box down at the bank. If you had bought $20,000-worth of gold bullion coins when gold was $300 an ounce back in 2001, they’d be worth more than $47,000 today.

I’d definitely avoid stockpiling cash – greenbacks – for now. They’ve lost 32% of their buying power since 2002. And the way Washington is printing funny money (unbacked paper and electronic dollars) these days, the dollar is likely to lose a lot MORE than a third of its value over the next five years.

Oh – and never tie up your rainy-day money in long-term CDs or a retirement fund or anything else that will penalize you if you really do need to withdraw it fast.

THIRD, Pay Cash Whenever Possible:Borrowing money seduces you into paying more than you otherwise would. And I’m not talking just about the interest on the money you borrow.

Easy money also lures us into buying more things … and more expensive things. If you were going to buy bedroom furniture for cash, for example, you might pay $2,000. But on credit, you may be tempted to go for the really good stuff – and find yourself paying $3,000, $4,000 or even more before you add in what the interest is going to cost you.

The result can be disastrous: The whole mortgage crisis we’re going through right now began with under qualified families taking advantage of lax lending standards, low interest rates and adjustable rate mortgages (ARMs) to buy more house than they could afford.

Now, with the value of those homes plunging and the monthly payments on two million of those ARMs beginning to rise, millions of families are losing their homes.

A sensible rule of thumb might be to never use credit to buy something that will be worth less tomorrow than it is today. That of course, would rule out buying a home that’s likely to be worth less tomorrow than it is today – especially if rents are still cheap in your area. Or using credit to buy a new car, which loses 20% to 30% of its value when you drive it off the lot. Ditto for furniture or appliances that are worth a fraction of what you paid as soon as they’re delivered.

If you feel you must use credit to finance something that’s going to depreciate, at the very least keep it to a minimum. And make sure you’re not spending more just because you’re buying on time.

FOURTH, Watch Your Overhead Like a Hawk: The cost of living has a way of sneaking up on all of us even if you never borrow a penny.

Food prices rise. Gas prices rise. The energy to light, heat and cool your home rises. And of course, you can bet your bottom dollar that state and federal income taxes … property taxes … sales taxes … excise taxes – and every other tax you can name – will inevitably go up, up, up.

To avoid having to plunder your rainy day money to meet monthly living expenses, it’s a great idea to review your business and family budget a couple of times a year – just to make sure you’re living within your means. If not, you have two choices: 1) Cut unnecessary expenses or 2) Find a way to earn more.

The best advice is to limit your overhead to some fraction of your average monthly income. If you net $200,000 a year after taxes for example, limiting your overhead to 80% of that amount gives you a $40,000 per year pad.

THE BOTTOM LINE: Money worries kill creativity. Being desperate to bring in enough to pay the bills forces you to rush through each job just to get paid. That means lower response. That means damage to your reputation. And that can kill an otherwise promising career.

Food for thought.

Hope this helps …

Yours for Bigger Winners, More Often,

Clayton Makepeace
Publisher & Editor
THE TOTAL PACKAGE

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6 Comments »

1. Comment by Donna Doyle — September 17, 2007 @ 7:08 am

   I\’ve been a freelance copywriter for 7 years and a working writer for 17. Clayton, this advice is priceless for every freelancer out there. It\’s during the slow times when so many successful freelance careers crash and burn. Your great advice will help many of us make sure this doesn\’t happen. Thanks!

2. Comment by Rich — September 17, 2007 @ 9:30 am

   Hi Clayton,

   I am really surprised that you blew this one. You are a financial copywriter and you said in your second item that investing in mutual funds and ETF\’s is safe. Because they are guaranteed by the US Govt. you can\’t lose your money. Wrong! These are still mutual funds and ETF\’s and there are no guarantees period. There is no absolutely safe or guaranteed investment. Thanks. I love the \”Total Package\”.

   Rich

3. Comment by RJ Purvis — September 17, 2007 @ 11:27 am

   To John, He said invest in mutual funds and ETF\’s that invest in US treasuries that are safe. Does that make a difference? Im from Canada so not sure, but that\’s how I read it.

   To Clayton…this is great advice - the irony for me is that Im a CA which is like your CPA there and for most of my adult life I sucked at money management. All you have to do is look at my stable of sportbikes and gear/accessories and you\’ll know why - anything left went to food and clothes. Im much better now, but definitely suffer from said Optimism that you speak of. My attitude has been, \”I\’ll figure out a way to make it all work.\”

4. Comment by RJ Purvis — September 17, 2007 @ 11:28 am

   Sorry, that 1st para should be directed at Rich, not John - not sure who John is…lol

5. Comment by Rowan — September 17, 2007 @ 7:37 pm

   Great words from the master.

   the dumbest thing kids di is they buy a car for $10k, pay $15k, trouble is its only worth $5

6. Comment by Clayton Makepeace — September 18, 2007 @ 3:59 am

   I\’m afraid you misread me. I did not say that ALL ETFs and mutual funds are safe. But funds that own only US treasuries trade on the value of those treasuries — and the yields they pay are guaranteed by the good faith and credit of the US government.
   They are the world\’s safest investments — which is why the yields they pay are so low.
   The only way your yields would be interrupted would be if Washington defaulted on its debt — which has never happened.
   Hope this helps …