Which is a Better Gamble, Playing the Lottery or Starting a Business?

Have you ever heard a co-worker complain about their job then follow it up with something about quitting once they win the lottery?  I feel bad for these people and would love to crawl into their head to read their thoughts. Do they really think they’ll win the lottery? If their life plan is based on winning the lottery someday, odds are they’re in for disappointment.

Playing the Odds
If you are going to play the odds for income outside of your job, you might as well try starting some venture of your own.  The historical statistics aren’t so good for the success of a new small business.  However, even though many fail in the first few years, your odds of making a small-business work are definitely higher than winning the lottery.

Building Value
Of course offering your own product or service is a lot more work than buying a lottery ticket but statistically it is a much smarter move. A lottery ticket doesn’t hold any long-term value unless it is the winning number. The experience and connections you build when starting your own venture will be of value for years to come, even if the first business doesn’t work out.

Mental Rewards
Running your own enterprise, regardless of size, can be more psychologically rewarding than trying to guess the winning numbers.  When you play the lottery it’s pretty much up to chance, you don’t have control over whether your number is picked.  It can be frustrating when you don’t win time, after time, after time. All you can do to try again is buy another long-shot ticket.

On the other hand, building your own business is something you do have control over.  If something doesn’t work you have the power to make some changes and try something different.  Knowing that you’re in charge of the end result is more empowering than hopelessly wishing the numbers will finally fall your way.

Get Rich Slowly
The obvious draw to the lottery is the get rich quick appeal.  It’s easy to play and you can win a lot of money.  Not to say that I wouldn’t love to win the lottery but the odds are I won’t.  Rather than hold on to a slim hope of hitting it big so I can quit my job, I’d rather put my time & money into growing something that might actually let me quit my corporate job someday.  Not to say you should never play the lottery on a whim, just that you shouldn’t make winning the lottery be your life plan.

Personal Finance Review – Invasion of the Ants Edition

Our kitchen is being invaded by ants!  We’ve had a few ants here and there in summers past but over the last week they’ve shown up in full force.  Last weekend I bought some insect spray at Home Depot and sprayed around the outside of the house but it doesn’t seem like it’s done much good.

Rather than diminishing they seem to be spreading to more areas in the kitchen.  We’ve never had anyone come spray for bugs before but are going to look into it.  Any suggestions on how to handle the ants or some good companies to use?  Anyhow, while I’m fighting ants, you can enjoy some money articles from last week.

Start off by checking out the debate between Trent and JLP in the comments of this post on investing, then move on to the ones below.

-The (Lack Of) Relationship Between Intelligence And Wealth @ Money, Matter, & More

-Are You Ready To Be A Parent? Know The Cost Of Having Kids @ The Digerati Life

-Reader Question: Whole life insurance vs Term insurance? @ Generation X Finance

-Weather the Stormy Market with a (Re)Balanced Portfolio @ Suns Financial Diary

-Prosper Beats the S&P 500? @ Lazy Man & Money

-How to Make Money in the Stock Market @ Five Cent Nickel

-Leverage Your Contacts for Business Marketing Success @ Free Money Finance

-More On Why I Sold My Vanguard Target Retirement 2050 @ Blueprint for Financial Prosperity

-Money-making idea: Journaling while you’re learning a new skill @ Mighty Bargain Hunter

-10 Tips for Buying a Residential Rental Property, Part 1: Buy at the Right Price @ Consumerism Commentary

-8 Ideas for Saving Money on Books @ Plonkee Money

-Employer Disability Insurance @ The Financial Blogger

-Questions and Answers with Warren Buffett @ Get Rich Slowly

Thanks to The Simple Dollar for including the article Retailer’s Anger Reveals How You Can Make Money On eBay in last week’s Carnival of Personal Finance.

Why Do Car Dealers Have to Shout At Us to Sell Cars?

Why is it that car dealers think it’s necessary to yell at us in their radio ads? It seems like every car lot commercial I hear is the same.


I have never gone to a car dealer because I heard them shouting at me on the radio. As a matter of fact I will try to avoid any business that screams about selling me a car.

Ridiculous Commercials
Is it just me or do these car commercials seem ridiculous? Is there any other type of business where they shout at potential customers in their advertising? Seriously, every commercial sounds exactly the same. What do they do, all hire the same guy with a booming voice to yell about liquidations and financing? And how many sales events can one dealership have in a year?  If you have “a spectacular sales event” every two weeks, are they really all spectacular or do they become just another excuse to shout about selling cars?

Junk Mail
If the annoying radio commercials weren’t enough to drive me away, the trick junk mail definitely is.  An official looking letter that read IRS NOTICE made my heart leap several months ago.  When I opened it up to discover that IRS stood for Inventory Reduction Sale at a local car dealer it certainly didn’t make me want to rush over and buy a car.


Different Song, Same Dance
How many times have I heard that car dealers are “slashing prices” to sell as many cars as they can “regardless of loss of profit”?  If that were true, wouldn’t their cars be selling for better deals?  If you follow up on those ads, you still have to go through the whole salesman’s song and dance of running back to the sales manager to get prices approved and calculation after calculation to see how they can reduce your monthly payments instead of the price of the car.

I’m not arguing that car dealers should sell cars without making a profit, just wishing they’d change their selling tactics.  Their current approach must work on some people otherwise they wouldn’t keep doing it but one thing is for sure, it doesn’t work on me.

How to Start Your eBay Business Without Credit Card Debt

Do you want to start your own eBay business with minimal risk and no debt? I’m sharing the steps I took to build my eBay business and giving away a free multi-part tutorial on how to get started. Sign up for the free tutorial with the adjoining form and get started today!

Is it wise to go into debt when you’re starting a business? Do you have to borrow a chunk of money or is there any other way get started? I had a reader email me in response to my post on using credit cards to buy eBay inventory.

“Many small businesses use credit cards to fund their initial expenses.  A lot of times when you’re just getting started you need some seed money and credit cards are a simple way of getting it.  Sure there’s the risk you’ll carry a balance for a while until you become profitable but isn’t assuming risk just part of doing business?”

Startup Money
The saying goes “it takes money to make money”.  The good news is you don’t necessarily need a lot of money to get started.  The very first thing that Guy Kawasaki tells us in the “Art of Bootstrapping” is to focus on cash flow.

“Focus on cash flow, not profitability. The theory is that profits are the key to survival. If you could pay the bills with theories, this would be fine. The reality is that you pay bills with cash, so focus on cash flow. If you know you are going to bootstrap, you should start a business with a small up-front capital requirement, short sales cycles, short payment terms, and recurring revenue. It means passing up the big sale that take twelve months to close, deliver, and collect. Cash is not only king, it’s queen and prince too for a bootstrapper.”

Bootrapping on eBay
eBay fits Guy’s requirements pretty well. You can start off only selling one or a few things so the up-front capital requirement is small.  Auctions can last 3-10 days so the sales cycle is short, unless you sell in an eBay store which may have longer inventory turns. You can set your own payment terms, if you only accept PayPal then most people pay within a day or two of winning the item.  The recurring revenue of course depends on you finding new products to sell but the good news is products are everywhere.

Why Go Into Credit Card Debt?
The reader mentions that many small businesses use credit cards to get started. While this may be true, I would ask, why take on high interest debt when you don’t have to?  You can actually be profitable and have positive cash flow after your first sale on eBay, why go into debt that will just eat into your earnings? 

Of course, the way to keep initial capital requirements small for an eBay business is to start only selling a few things.  As you make money on the initial sales, you can re-invest the profits into additional inventory and grow the business without debt.  If someone is looking to start out with tons of inventory and sell hundreds of dollars of goods a week right off the bat, they may have to borrow money up front.

Alternative Funding
If you don’t want to go into credit card debt to start making money online you can always pursue other, less expensive funding sources such as taking out a second mortgage, dipping into personal savings, borrowing from friends or family, taking out a bank loan, or borrowing on Prosper.

eBay & Prosper
eBay is actually hosting a Prosper forum today for people interested in borrowing startup money on Prosper.com. Run by Prosper Marketing Director, Shira Levine, it will go over some of the basics of small business finances. Here is summary of the forum:

“We’ll cover the five basic questions every business should ask themselves before you finance, how to know where you stand financially, and the importance of cash reserves in your company. Then we’ll cover financing basics: debt vs. equity, credit scores and reports, and common pitfalls to avoid. The workshop will end with how to create an excellent loan listing on Prosper that will get your business funded.”

Credit Card Funding
Of course everyone’s situation is different and using a credit card as a funding source might work out for some people.  However, if you want to avoid high interest charges and are willing to start small and grow your sales over time then it’s possible to start making money on eBay without going into credit card debt.  Are there any other alternative funding strategies that I missed?

Use Credit Cards Wisely When Selling on eBay

Is it a good idea to use credit cards to pay for inventory when starting an eBay Business?  I had a reader ask this question the other day and I think the answer is, it depends.  Personally, I use a cash back credit card to buy any inventory I sell on eBay but there are some specific rules I follow when using the card.

Only Spend What You Have
If you purchase something on your credit card and sell it before your card payment comes due, you’re leveraging your credit card. You sold something for a profit that never actually cost you any money since you had the cost covered before you received the bill. While this is a great tool to make money, you should be cautious about abusing it. I only spend money on inventory that I know I can cover. What happens if you buy a bunch of stuff on credit you don’t have the money for and can’t sell it before your credit card payment is due? That leads nicely into the next rule.

Pay It Off
If you aren’t going to pay off your card balance each pay period then you shouldn’t use it to buy inventory.  Don’t even think about taking your profits and re-investing it in new inventory until your card balance is paid.   The whole point of selling on eBay is to make money.  If you’re carrying a balance then you’ll be losing money with the high interest charges.

Be Disciplined
You have to use strict guidelines when buying items to resell on eBay to be sure you’ll make money.  I only buy something if I have a good feeling how much I can sell it for and what my costs of selling will be.  One tendency people have when using a credit card is to overspend or make foolish purchases because it doesn’t feel like you’re spending “real money”.  If using a credit card prevents you from being disciplined in your buying you shouldn’t use it.

If used correctly, credit cards are a good tool to use when buying inventory to sell on eBay. The benefits are it earns you cash back, offers a little leverage, and helps keep track of all your purchase records in one place. However, if you can’t follow the suggested rules, I’d recommend not using them.

How Do You Know When to Invest in a Down Market?

As you watch your investment holdings quickly diminish over the course of a few days it is easy to panic.  You might give some thought to trying to cut your losses and sell but if you’re a long term investor this is likely not in your best interest.  In fact, when the market is down is the best time to buy.

… it always feels a lot better to buy when the market is going up. But you make more money buying when the market is going down
[The Long and the Short of Down-Market Investing]

… if you invest regularly and have some time before retirement, bear markets can be a beautiful thing.
[Down Markets Good for Many Investors]

Here is my question. How do we gauge when the market slide has finished?  The chart below is pretty obvious in hindsight but in the heat of the moment of the market decline you never really know where the bottom is. 


Dollar cost averaging is how I currently put money into my investments but am considering buying more when they’re on sale. So how do I know when to buy into a down market? 


The chart above shows the price of an S&P 500 Index, Vanguard 500 Index (VFINX), since the Fall of 2002, with 14 occasions where the market had a noticeable drop.  It’s not very scientific; I just eyeballed some low points.  Thanks to Google Finance I was able to look at the price before the drop and the price after the market decline. 

The table to the side shows the percentage change in the price of the index after each occasion. One rule I could use to decide when to buy into a down market is to only buy after the index has dropped by a certain percentage.

I would have bought at almost each one of these dips if I set my benchmark to any decline over 3% but would have only invested in 6 of them if I decided to wait for drops of 4% or more and only 2 of them if I required at least a 5% downturn.  I’m not sure which percentage I should settle on but I do know the latest drop in prices looks to be the second largest in 5 years.

Of course, another thing to consider is that the market has been on an overall upward trend over the last 5 years. I’ll have to also take a look at buying in the dips over a 10 or 20 year period to see what that turns up.

What are some other ways you use or know of to help determine when to buy in a down market?

Is the Stock Market Down?

Did I hear someone say something about the stock market doing poorly lately? Okay, I know it’s been taking a beating but honestly I haven’t been paying that much attention.

Ignorance is Bliss?
I haven’t looked at the value of my investments since June, the end of last quarter.  I haven’t checked out a chart of the performance of the S&P 500 Index in weeks. Every day I hear about another drop in the stock market on the radio but I haven’t logged into my accounts to view the damage. I know my portfolio is down but I’m not really that alarmed.

Long Term Investing
The reason I’m taking this non-chalant view of my portfolio’s performance is because I’m investing for the long term.  It sucks to hear that some of our hard earned money is losing value but using history as a judge, it should eventually go back up.  Markets can’t only go up forever; they will inevitably lose some of their gains. The hope is over 40 years time, they will still have an upward trend and we’re just in a little down blip.

Buying Opportunity?
As a matter of fact, we actually put more money into the market every two weeks through our automatic investment plans.  Since we’re investing over a long time frame, we could actually look at this market drop as a buying opportunity.  I don’t have any extra cash laying around to put into the markets but our bi-monthly investments are buying us some companies at a discount.

Investment Approach
I’m not saying that everyone should pay as little attention to the market drop as I have.  Each person has their own investment approach and deals with market downturns in a different way.  It’s helped that I’ve been pretty busy the past two months and so have had less time to stress out over the stock market.  I just wanted to mention the fact that if you’re investing for the long term, the recent market troubles will hopefully just be a small dip in a stock chart looking back several years from now.  Of course, I do hope it eventually goes back up : )

Personal Finance Review – Yardwork Sucks Edition

I’ve never been a big fan of cutting the lawn, nothing productive comes of it.  You mow the grass, it grows up again, repeat 50 million times until you die or install crushed rock instead. 

I see mowing the lawn as a nuisance.  You’re not creating anything of value; the only good thing that comes of it is some time to think. Other than that it’s wasted energy.  Just think of all the hours of productivity that are lost each year in this country because of the time we spend cutting the stupid grass.

I had a contractor friend from India a few years ago that just laughed at me.  He said, “You Americans spend so much time and money getting your grass to grow tall and green and then you just have to go out and cut it again.”  I agree with him 100%, if I didn’t have to mow the grass, just think how many more money articles I could read each week : )  Here are some personal finance posts I did get a chance to read this week:

-12 Things I Will Never Spend A Dime On @ Money, Matter, & More followed by Five Things I Will Spend My Dimes On @ Lazy Man & Money

-Profit From The Weak U.S. Dollar With Currency Plays And Other Strategies @ The Digerati Life

-In case you hadn’t noticed, the martket hasn’t been doing so hot lately.  Not sure what to do?  Read these posts first, Finding the “Winner” in Market Turmoil @ Suns Financial Diary, The Dow is Falling Through Support Levels: Is the Worst Yet to Come? @ Generation X Finance, and Now’s a GREAT Time to Invest @ Free Money Finance

-10 Reasons Credit, Debt and You Should Be BFF @ Blueprint for Financial Prosperity

-Money and Happiness @ Five Cent Nickel. Turns out, money can make you happy!

-Making money with an eBay Store, Part 3: Starting and minding your business @ Mighty Bargain Hunter

-Some more tips for a volatile market Stock Markets Got You Stressed? Here’s A Calming Chart For You and Basic Investing In A Down Market (Or Any Time You Feel Nervous) @ The Simple Dollar

– Moneyning tells offers a tip for Detecting a Phishing Email & how to get a Free Copy of Microsoft Money Deluxe

Time Is Money – How I Will Stop Wasting Money & Time!

Do you feel like the older you get the more you understand the saying that time is money?  Responsibility levels tend to increase with your age and before you know it there’s no time left in your day! Since the opportunity costs of lost time can be enormous and I have found myself spinning my wheels lately I decided today to lay down some rules to help me become more efficient with my time and more effective in the things I do during that time.

Prioritize Projects & Tasks
I started off by listing all the projects I’m working on ordered by importance and posting that list next to my computer monitor.  I won’t work on anything unless it helps me accomplish one of those projects. I need to figure out the ideal maximum number to have on the list at a time, right now its 10.

Each day before I work on anything I’ll make a list of tasks I need to do in Google Notebook so that I have access to it at work and home. Keeping my focusing on these items should help me reduce the amount of time I spend on unimportant and ad-hoc tasks. 

Reduce Distractions
One thing that slows me down is that I get easily distracted.  This can be dangerous on the Internet because there’s so much content to read and so many people promoting it. One interesting article or idea can lead to another, and another, and another. To combat this I will limit the number of Firefox tabs I can have open simultaneously to 10.

Another way I tend to fill my hours is by hitting F5 on my Gmail tab.  To prevent constant context switching, I will check my e-mail morning, midday, and evening. I will also limit the review of statistics to twice a day (checking web hits, stock prices, money made, etc).

The idea of reducing distractions was inspired by suggestions from the 4-Hour Work Week by Tim Ferriss.

Take Short Breaks
Another problem I have is getting stuck while working on a project or article. I will hit a wall conceptually and/or creatively and waste time meandering while trying to get out of the slump.  Anytime I get stuck I will take a several minute break to wake me up and get the juices flowing instead of trying to struggle through it in front of the computer.  I’ll always take along a piece of paper and pen to write down any ideas I have while away.

Follow a System
I’ll start using the writing approach that Darren Rowse uses to help prevent:

  • Sporadic Posting Frequency 
  • Fluctuating Post Quality
  • Decreased Productivity
  • Lack of Momentum

Know When Enough is Enough
Oftentimes I want to get “one last thing done” before I go to bed even though I am struggling to stay awake. Frequently I’ll put my head back in my chair to rest my eyes for a minute only to awake hours later with my computer monitor still staring at me. Sometimes I know I won’t get anything else done without sleep. Foolishly I will lay down on the study floor for cat nap and wake up there cold and stiff in the morning. 

I’m sure I sleep much better in bed than in a computer chair or on the floor so when I’m tired I’ll either wake myself up with a quick walk around the yard or hit the hay.

Make Use of Down Time
I hate sitting in traffic and waiting in line, obviously because it wastes time.  I need to do a better job making use of this down time.  Anytime I leave the house I need to have at least one or more of a magazine, voice recorder, and notepad along.

A magazine is nice for places you have to sit and wait such as the barbershop or doctors office. They usually have something to read but most of the time it’s nothing I’m interested in.  The notepad is nice for recording any thoughts or ideas I might have while standing in line. I use an MP3 player with a built-in microphone for when I’m sitting in traffic and want to capture something without writing it down. Having a list of ideas or an outline already built when I sit down to the computer should hopefully make me more productive.

That’s my list to help become more effective and efficient so far.  Anything else I should add?  What tricks do you use to prevent wasting time?

Paying Off Your Credit Card Balance vs. Paying Your Taxes

I had a reader ask an interesting question the other day. If I am short on cash, should I pay off my credit card balance or pay my taxes?

Obviously if you don’t pay your taxes or credit card bill at all there are legal issues involved but this person is trying to decide which to put off and which to pay first. The options they’re considering are:

  • Making the minimum payment on their credit card and paying their taxes in full.
  • Paying off their credit card bill and paying their taxes late.

Since I’m not very familiar with the implications of paying your taxes late or what options you have to work with the IRS on making payments I thought I’d open this one up to the readers.

The goal is to minimize the amount of interest and penalties you pay to both the credit card company and the IRS. Assume you have a similar amount due to both the credit card company and the tax man. Which option would you choose and why?

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