The Freelancers' Show 107 - Finances and Emotions with Ryan Castillo

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The panelists discuss how emotions can affect your finances and business.

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CHUCK: Hey everybody and welcome to episode 107 of the Freelancers’ Show. This week on our panel we have Eric Davis. ERIC: Hi. CHUCK: Curtis McHale. CURTIS: Good day! CHUCK: I'm Charles Max Wood from DevChat.tv and we have a special guest today, and that is Ryan Castillo. RYAN: Yup, that’s right. CHUCK: Do you wanna introduce yourself really quickly for those who aren’t familiar with who you are and what you do? RYAN: Sure. My name is Ryan Castillo. I'm an independent consultant out of Virginia Beach, Virginia. My company’s called Challenge Accepted, and I've just recently started blogging about what I learned and how I got into freelancing and I guess kinda sharing the lessons and the pains that I've encountered along the way. CHUCK: Cool! So Mandy got you scheduled on here, we’re talking about finances and emotions. Do you wanna kind of give us a little bit of an intro to that? I know you wrote some blog posts about it and then maybe we can discuss it from there? RYAN: Sure. The way this happened was I had written a couple of blog posts regarding just saving in general to prepare for freelancing. The basic premise of the blog post was that what you wanna do is you want to separate your emotions from all your business decisions. One of the things that causes a lot of anxiety for people is on their finances, so I think the first couple of series in the blog post were covering how you can save in order to make a successful transition into freelancing. CHUCK: So, are you advocating that people save up before they go freelance –? RYAN: Yeah . CHUCK: Or is this something they can do after they go freelance? RYAN: I'm advocating just to save, in general. To always put away, you know that basic lesson that we learned as kids: set aside that 5% for a rainy day, or in the case that now that we’re older, for catastrophic situations. But for people making a switch, trying to get into freelance, one of their big anxieties is to let go of that salary, that consistent income and then there's fear of income always dropping or clients dropping when they start freelancing, so one way to alleviate all that is to kinda have that poor chest built up as you go along. CHUCK: Yeah, that makes sense. We talked about saving on the show before – how does this square up with the discussion of getting out of debt? RYAN: Well, getting out of debt is, I guess, it’s a similar kind of problem. I'm not entirely sure of the context that was discussed with the getting-out-of-debt episode, but I mean, the basic idea is when you bring in revenue or when you're bringing in income, you want your income to go on to separate buckets. One of those buckets is savings, and then one is general monthly expenses, and another of those buckets can be debt, and you can adjust the size of the bucket depending on what's causing you the most anxiety at the time. CHUCK: Eric, I know that you're a lot of a saver. Can you talk about your approach to saving money? ERIC: Sure. Basically, I have my business as separate from my personal stuff. In the business, first right off the top, I save 35% - and I think I'm going to raise it to 40% - of gross revenue. That’s for taxes and so you don’t get a hell of a tax bill later on. And then based on that, if there's any money after expenses and all that stuff, I put it into a savings account, and the intention is to have kind of an emergency fund of three to six months of business expenses, and that actually includes my salary. And then on the personal side, I pay myself a regular salary, so that’s a set amount every month, regardless of how much actual business revenue I bring in. And so on the personal side, I can count on that, and then we save [inaudible] but we saved up enough to have three to six months of personal expenses. We kind of have a multiple tier way where if the business [inaudible] revenue, I can actually keep drawing a salary for three to six months, and then when all that money is gone and say, my wife loses her job, we can still draw on our personal savings account for another three to six months. So we have six months to a year of safety net of no money comes in and we don’t change our lifestyle at all. And practically speaking, if we both lost or jobs, my business stopped working, we’d cut back on discretionary income spending. But kind of the way it worked, like I said, in the business, I stocked away extra money. I have a certain amount of expenses I know each month – anything over that, I put into savings or I’ll use to kinda reinvest in my business if I have more than six months. Was it last year, I think? Last year, I had about 12 months of savings, so I took out some of it to kinda use for investments and do other projects for a while. RYAN: Yeah, and that’s the interesting point that I was going with some of my blog articles was that when you have this cushion, when you have this poor chest saved up, when you have that fallback plan, it allows you to kind of make these decisions without any kind of anxiety. One of the examples that I gave was, well, if you're back’s against the wall, all your freelance stuff kind of drop and you have no leads, you're likely to kind of just jump on eLance and take whatever contract is available, instead of kinda picking and choosing and taking your time to find the next client. CHUCK: Yeah, that desperation’s pretty awful, isn’t it? RYAN: Yeah, it’s the emotional roller coaster that everyone kinda talks about with freelancing, the ups and downs of it. I guess, kind of what I'm advocating for is it doesn’t necessarily have to be that way. You can save up, and once a client drops, you can work on another projects, can take your time finding the next client – you just have to plan a little bit ahead and just be a little smart about it. CURTIS: I actually spent the last hour talking to a guy who’s in the opposite position as the client project’s been dragging on, so he got first deposits but not the finish, and he’s got a bunch of debt and no savings. So, he has no income coming in, and none coming in for the next little bit and has – not sure how he’s going to pay his bills. It’s stepping back to the point of actually having savings a month ago, or two months ago, would have saved him at this point. ERIC: Yeah, and actually I'm kind of at that – not that place, but I'm in a different place right now where I guess –. Last summer, six or nine months ago, I had extra cash and so I kinda took time off from client stuff and worked heavily on learning about different topics I was interested in and wrote two and a half books. Basically now, I've sucked a lot of that money out of my savings to kinda pay for keeping my life going, keeping my business going. And now, I just wanna work with clients and I started my client services back up. I have savings there, so I don’t have to jump right in and, like you said, go to eLance or oDesk and try to find any kind of money I can. I have a few months of savings in my business to kind of find the good clients for me, get my marketing up to where it should be and all that. While it’s stressful that I'm taking money out of savings, it’s not as stressful as it would be like, I have a mortgage payment that I haven't made. CHUCK: So what do you tell the person that is kind of living at the edge of what they're earning so they don’t really see that they have much margin to put money away into savings? RYAN: That’s actually a tough problem. I think you guys interviewed Brennan Dunn a couple of episodes ago, and I guess his ideas are to raise your rates to get the most value out of your clients. And for me, when I was kind of encountering that edge, I was doing it with an hourly rate. So what I would do is I would have one full-time client, but I would also take one on the side. But with those clients on the side, I would kinda bump up my rates a little bit to kinda build up that cash flow. So if it was someone in a full-time job, what I would tell them is like, “Hey, take client part time. Get your feet wet and direct all that money, all that extra cash to a savings account.” If it’s someone who’s already freelancing, what I would say to them is – or the first thing that I would ask them is, “Are you tracking your expenses? Are your expenses kind of going up and down month to month, or is there a consistent median?” And once you have that data, you can start to look into budgeting and stuff like that, but I don’t – I don’t advocate for changing their lifestyle too much. I just advocate for having data to kinda back up their decisions, rather than basing them off of emotions. CURTIS: I think the biggest thing that I see is that people need to get on a written budget. They make plenty of money; they just spend it on $3 coffees a bunch of times a day, which is not bad, but they don’t budget for it so then they spend way more than they expect. ERIC: Yeah, or people get into the freelance world and they don’t pay themselves a salary. They just take out all the revenue that’s coming in, rather than taking out a consistent amount month to month. Yeah, I mean, and that’s kind of personal finance – budgeting all that is, you know, you're overspending your expenses and you can’t do that in a business. Do you really need a new Mac every year? Do you need a new iPhone? You can cut back a lot of stuff, and I have kind of a regular task at every quarter – I audit every kind of subscription expense I have, and I have a certain level, and I make sure that all of my expenses each month get below that level and sometimes it means like I'm going to have to cut a service that’s mildly useful but is just not worth the money. RYAN: Yeah. Sometimes the other thing that you can do is you can just find a really good accountant. One thing that I did was after the revenue started coming in very consistently and I was comfortable with the salary that I was paying myself, I hired an accounting firm. I paid a bit of a premium for them, but they’ve been really good about helping me come up with a budget. And now, for instance, if I wanted to buy a new iMac or something like that, I would look at the budget and see, “Okay, so these are the things that I typically spend” or “These are the things that I've spent on in the last several months. These are the buckets that have excess money. Now, is it time for me to buy a new iMac, or do I have to wait a couple of months until those buckets fill up a little bit more?” CHUCK: Yeah, that makes sense. Do you have tips for figuring out what kinds of things you need cut from your spending? ERIC: Expensive ones RYAN: Yeah. Well, one thing is, I'm not sure what the general practice is but I advocate having knowledge as to what your expenses are. I use this old chart called Chatzky’s Chart – and this was for personal expenses and this is how I kinda got into all this – it subdivided all my expenses into life expenses, home expenses, automotive, general debt, and savings, and it had a percentage for each spent, and it kinda gave me a baseline of –. Well, based on my income and these percentages, this is how much I should be spending on each of these things. Once I had that knowledge, and then I actually look at what the actual things were, then I could kinda start cutting off things off the top. Well, I eat out a lot so maybe I'm $200-$300 over the life budget; maybe I can cut down on eating out a little bit and stuff like that. ERIC: And there's something I've done – I just pulled mine open; I've been actually doing it or seven years, so I think every year I've been freelancing except for the first [inaudible] a couple of months, but I have a spreadsheet – it’s basically an income statement if you know financing accounting, but it has revenue and then different expenses like the top level categories. And then it has the calculation for how much to save for taxes, what my business profit will be, and then it kinda has an estimate of how much I have to pay in taxes. But I've been using that for seven years, and usually around December I fill it out. I say, “Okay, here’s what I'm planning on: based on last year I spent this much on, hosting this much on contractors and all that stuff.” And then I write it in the spreadsheet and group it out for the monthly stuff. Some things like government fees only happen once a year, so it’s only in December or whatever. And every month, when I finish a month, I actually balance my books and update the sheet, so I can actually track in real time. Here’s what I projected that [inaudible] would be, and here’s what it actually is and I can see, “Oh, look. I'm spending too much on hosting this month” or too much on phone stuff and so I can actually take that data and adjust what I'm doing. I found that having what normal people spend on category hasn’t been useful to me because I'm not normal – all of my expenses basically go to hosting and training education for my business. I spend almost nothing on eating out, nothing on travel, and that’s just because I've been watching it for the six or seven years and kind of seeing the patterns of how I work and how my business is. RYAN: Yeah, and that's actually very important. When I mentioned Chatzky’s chart for my personal expenses, I use that as the initial step. Then after that, after the first six months of using that then I kinda start notice the pattern. It’s like, “Oh well, I don’t follow these strict percentages.” My percentages are a little bit different, but if I know how I'm spending things, then I know where to cut things out. And then I just brought that over to my business. Like you said, you knew you spend on hosting, but not a lot on traveling and eating. I just kinda started that similar pattern with my stuff and was just able to use I guess those constraints to make better business decisions. ERIC: To go back to the idea that someone’s kinda at the edge and they don’t have any money for saving – it’s a hard way of doing it, but one piece of advice I heard is if you get paid whether it’s freelancing or a full-time job, take 10% or 5% or 15% - whatever you can, whatever that’s worth kind of reasonably a little painful to put away and put that into savings from your paycheck, and basically don’t let yourself touch it and force yourself to live off of the remaining 90%, 80%, whatever it is. I'd even heard advice that goes so far as to change it so that your paychecks are deposited into your savings account automatically, and then you pull out a set amount – the 80% of your paycheck – and put that into your checking account. So if you get overtime pay or bonus – that goes into your savings account. You don’t actually even see it. RYAN: Yeah, and there are a ton of different tricks like that. I think one trick that my wife and I tried early on when I was making significantly more than she was is we directed all of our income towards our expenses, and we directed her entire income to just savings. So that’s one way of doing it, but if you have a spouse that doesn’t work, there's no money there – so that’s just one extreme. Another extreme of the simpler way of doing things without big changes is for every page, you just start off simple. You start off with something not as painful, and then you keep on bumping that amount each time. So let’s say, you get paid every two weeks. You may start with something like $20, and then the next week you just increment it by $5 or by $10, and then eventually you'll find yourself kind of not relying on that little bit of money anymore. You just have to find out kind of what works best for you and just kind of experiment on how to save and just remember the pains and anxieties that not having savings are causing you and that'll be a bit more of a motivation to save. CHUCK: When you're saving your money, do you actually have a separate account you're transferring money over to? RYAN: Yeah. For my business, what I'm doing is money comes in – and I think Eric kind of said he saves 35%. I do about the same; I'm a little bit more conservative – I go 40%-45% just because this is actually just my second year of being completely on my own, so I put aside 45% or I think 40% as soon as it hits my bank account and it goes from my checkings to my savings for the business account, and I just label that as taxes and savings. So far, that’s enabled me to build a [inaudible]. ERIC: Yeah, I did the same. We have, or I have a business checking and then I have two business savings accounts: one is for tax, one is for emergency funds. That way, it’s separated and I can see in a glance. On the personal side, it’s similar but we don’t have tax savings and personal stuff, so it’s a checking account and then a separate savings account, and then normal piggy banks for change. CURTIS: Yeah, that’s what we do. I save 30% and I round up, so 30% on my normal weekly wait is 900 and I just make it a thousand all the time. RYAN: I guess you guys are all seasoned savers; we haven't really gotten to the emotional part of the finances and running a business. You guys notice the difference, when you're kinda getting closer to the edge, how anxious you feel? Have you found the amount of savings you need to have in order to feel no stress at all? Have you figured out that number? CURTIS: For me it’s six months, which I'm just working back up to after taking some time off for the new baby we had in January. We do six months in the business and three months personal, and not of expenses – we do it full income. ERIC: And for me, three is – I'm okay, there's no additional stress – and six is I'm happy-go-lucky and I feel like I can take more risks and I can be a bit more daring in what I do in my business. CHUCK: I'm still working on this, so I need to get better at it. I'm working on getting better at it, but we got pretty deep in the hole last year, so we’re just kind of getting out of it now. CURTIS: We were there a few years ago; we had a bunch of personal debt and everything and buckled down to pay it off and started saving, and I ended up owing the – not the IRS, the CRA, but same thing IRS in Canada – I ended up owing them $10,000 in one year and not having it sucked. RYAN: Yeah, another thing that I guess one of my friends did – he and I actually went into freelancing at the same time. He wiped out his savings because he had a medical emergency right before he got into freelancing. He knew that he had to go into freelancing just because of his circumstances, so what he actually did is he put all his initial, I guess first several months of freelancing expenses on a credit card and even though he took a hit because of interest, it wasn’t affecting his reduced savings, so that’s another way –. I don’t advise the kind of, build up your debt to unmanageable number, but that’s just another trick. Instead of wiping out your entire savings to zero, you can always push it off to something else like a credit card. CURTIS: Yeah, credit cards are terrible. Don’t. RYAN: Yeah, but the trick is you just gotta be sure that you're paying enough or –. What I try to do with my credit card is I always pay the full amount; I always pay the amount I spent the previous month, but if I can’t make that happen – and I understand a lot of other people can make it happen, you just have to maximize the amount you pay so you don’t occur too much interest, to the point where you're kinda just digging yourself more and more into a hole. CURTIS: Yeah, the math on most people use in credit cards – and I’ll say it upfront, no one has ever told me that 80% of people spend 12%-18% more on a credit card even if they pay it off every month. That’s like going to get milk that's $5 in Canada, and if I take a bite of a chocolate bar, that’s a 20% increase in my cost and most people spend that with a credit card. Although, anyone I talk to always says no until they tried not having a credit card for a while. RYAN: Yeah, and they are the worst. I remember when I started college – all these kids have their freedom. It’s just a nice time, feeling free from your parents, and right as we’re walking through [inaudible] you would just kinda see the credit card people ready to pounce and give these kids credit cards so they can start incurring debt and making them money. They are pretty terrible though. CHUCK: I also really think it’s funny that people – they have to have their credit card because they get miles or whatever. CURTIS: The math on that is if you spend – if you spend only 10% extra so you're conservative, you usually could buy your flight twice instead of having the points, if you save that 10%. Like I said, I have never talked to someone when I say this, who says, “Oh, that’s totally me.” I have talked to a lot of people three months later who would drop their credit card and I have a friend who basically only spends $25 instead of $100 because he went to cash instead. After doing the math on that for three months, he said, “Okay, this is stupid. I will never use my credit card again” and cut it up and never used it. I've talked to lots of people three months later that are those people, that said I do actually spend it but I have never had an initial conversation with the 80% of people. It’s never anyone I talk to somehow. RYAN: Yeah, and that’s kind of the interesting part in all this, and this is kinda how I try to drive my business is that I try to base everything on data. I try to do the math, I try to run experiments and make sure that my business decisions are based on data rather than how I'm feeling that day. I could be having a terrible day because my kids didn’t sleep, and my goal is kind of separate myself from that in order to make the right decision for my clients and sort of for myself in savings and all these finances. What I found, at least in the first couple of years of doing this, is that is the number one anxiety; that’s the number one kind of thing that will throw my emotions off. If I have a huge check come in, I'll be ecstatic. But if I have no money come in, I feel like my world is cheating around me and I'm sitting in quicksand. CHUCK: So we get freedom from this, we tend to take less risk, we don’t get into trouble with debt – are there any other major benefits for having savings? Or even minor benefits. RYAN: One minor benefit is the other guys talked about the six-month runway? I'm not sure about anyone else, but sometimes I just look at my accounts and I just –. Like I said, I've just been doing this for a couple of years; I take it as a major win to kinda look at those accounts and say, “Wow, if everything just fell apart, I’d be okay” for six months or seven months, whatever the number of months. And that’s something I actually tell my wife also because this can cause your spouse quite a bit of anxiety as well. I tell her like, “Hey, all the clients didn’t work out. If everything went away tomorrow, we’d be okay.” That’s just a huge morale booster for someone who’s on their own. CURTIS: One of the freedoms I love about having savings is I do budget for our new computers every so often, but if I was to drop, like drop and destroy my computer one day, I wouldn’t even sweat and just go buy one, because I have the savings to just go do it to top off the budgeting that I have if I don’t quite have enough for the new machine and it’s nice to know that. ERIC: Yeah, and I had that happen when my old computer just completely crashed. I overnighted the parts where the shipping cost more than the actual parts, and I mean, even now, I would be out maybe a day or two for my new computer for arrive, but it wouldn’t be I'm out for weeks and I don’t know how am I going to replace it. Like the cost of the computer isn’t the concern; it’s the lost time now. CURTIS: Yeah, for me I just walk down to whatever [inaudible] shop, because there's no Apple Store locally, and buy the nicest laptop they had there, if that’s what I was replacing and not sweat it. RYAN: And the other thing someone else mentioned earlier was not only does it enable you to feel okay in case anything catastrophic happened, but what if something simple happened? What if you were just feeling burnt out or what if you decide you wanted to work on products for a little bit? Having these savings can give you the freedom to just say, “Hey, I know I have six months in the bank. I want to take a month break.” I know it’ll probably take three weeks to a month to find a client after that month break – well, I can do it without blinking an eye. The only thing I really have to worry about is how to break apart from my current clients. ERIC: Yup, and I've done that probably half a dozen times now – for a couple month break, or this last time I took like a five, maybe six-month break. And yeah, just make sure [inaudible] start back up you'll give yourself enough lead time to find a new client, get paid and all that, but that’s simple math. Once you know those numbers, it doesn’t really change that much. RYAN: Yeah, and I did the same thing. I actually took some time off when my second son was born and my wife had some exams that she had to prepare for so I took on another couple months off of that, and everything just worked out and a lot of that was because I had some savings in place and I didn’t get too anxious. There was definitely some anxiety there when coming back to freelancing, but it definitely wasn’t as bad as it could have been. ERIC: Another side to that is not so much taking time off for yourself, but if you're basically running a red line, like you're spending everything you're bringing in and you're working, you have a full deck of clients – if something happens, you don’t have the flexibility to do anything, versus if you had some savings, then you might not need to take on as many clients. Or if you're like, my daughter got sick for a week one time and I had to take the time off and if I was running a red line, working with clients, I wouldn’t have been able to and we would’ve either have to hire someone to watch her, which would have cost us more, or I would have had to crash and work all through the night while my wife’s working through the day. But because of the savings and because I wasn’t running a red line, I was able to say that, “I'm just not going to work this week” and moved a couple of commitments around and everything worked out. CURTIS: I've used mine even when I started the project and realized the client’s terrible to work with, and just gave them the whole refund, right? I don’t need the money anyway; this is a bad fit, here you go, here’s 100% refund, here’s all the work I did, you should need to find someone else – which my contract has also reserved me the right to do. RYAN: And that is – there's so many benefits behind that. That move in itself, not just in the perspective of getting rid of bad clients, it’s such a good thing for your brand that you're willing to do that – that you're willing to actually give clients’ money back to ensure their happiness. What that is is that’s the same referral for later on, you know, hey, the relationship didn’t work out between you two but that doesn’t mean he’s not going to refer you to someone else. So that actually kinda ends up kind of being potentially either a multiplier rather than a straight loss from that engagement. Have you guys also seen how your finances and your emotions affect your rates as well? ERIC: Not so much my rates, but the quality of – specifically the marketing stuff I do. I got some advice a couple of years back of never write or create marketing materials when you're in an emotional bad place, like if you're upset, sad, depressed, or anything like that. If you don’t have money in your bank account, you're emotionally in a bad place and you're not going to do marketing as well, which means that's it’s going to be harder to get clients – it’s a cycle. I've seen that from me; I haven't seen it affect rates because I have a consistent rate, but under this, I'm having savings and all that lets me kind of adjust things. I could raise my rates if I felt like it, kind of like what Curtis says, I don’t necessarily need every client, so I can drop people through pricing myself out of their budget. CHUCK: Yeah, the thing that I've seen is that it’s kind of along the same lines of what Eric was saying in I tend to get more hours in, I tend to better more work done when I'm not in that freak out state where it’s like I don’t have any money in the bank and I don’t have any work. The other thing is that if I'm stressed over stuff, then I tend not to get the work done as well etiher. So it’s nice to have that peace of mind because I've got some money sitting in the bank that I can fail over to if I need to. RYAN: Yeah, that’s interesting – the overwhelming stress feeling. Besides saving, where I really apply these concepts are to how I do rates. Initially, what I was doing is I was billing clients hourly and I was taking on I think two or three clients at a time, but I kept on finding that I was getting to that emotional red line where I just felt overwhelmed to the point where it was borderline burnout and I just didn’t wanna do anything anymore. So what I decided was, “Well, what is causing me anxiety? What is keeping me away from my family?” Well it’s these hours, all these hours, and I'm trying to accomplish for all these clients. So what I did was I just switched to weekly for one client. I said, “Well, let’s try weekly. What I’ll do is you can pay less than the total number of hours you average for me usually, but we’ll just focus on the actual work that I get done for you, the actual productivity – not the number of hours that I'm clocking in.” By doing that, that kind of reduced some of the anxiety for me, so now I'm pretty much switching all my clients to weekly billing instead of hourly. CURTIS: I love weekly billing too, and I do that, but I'm not sure that’s the magic bullet for lots of people. I know most people who are not on a written budget, switching to weekly billing is just putting flowers on a stinky thing. [Crosstalk] You don’t have the budget, so you're just going to keep spending it, so it’s a little less stressful but you need to step back much farther in budget and plan your expenses for the year, and all the other things that we’ve talked about already. RYAN: Yeah, definitely. I guess what I'm advocating for is there are no magic bullets. Having savings, going from hourly to weekly – none of that is going to solve all your emotional distress, but what can is being introspective, and just kinda find the best things that work for you. For me, it was Chatzky’s chart; for someone else, it was having the same high budget every year for seven years. You just gotta have to keep on experimenting and find the right set of circumstances or parameters that will work for you and kind of optimize the most happiness in your business. CHUCK: Yeah, it’s pretty interesting to me just how much it really affects you to have this kind of thing hanging over you. Whether it’s I'm in a client that just doesn’t seem to be working out, or whether I'm stressed over money or anything else, it makes a huge difference. ERIC: When you think about it, whether your stress is coming from bad clients, or money problems, or you're just getting started like you don’t know stuff – all of that – it’s all stress. And as far as the human body knows, it responds to that just like a tiger chasing you. Your body doesn’t know the difference between you worrying about not eating next month versus I have this [inaudible] client. In any of those things, when they start getting out of hand and getting beyond what you can control, it starts affecting your life. Your health will start going down, your work quality would go down, happiness goes down – everything just starts getting worse and it’s a vicious cycle. It starts feeding on itself and you'll end up like a burnout or those kind of really extreme situations. Knowing what works for you and being able to head it off or at least recognize that this aspect, this part of my life isn’t quite right – that’s an important skill. You have to kind of grow that skill and kind of be able to step back and actually look at the bigger picture. RYAN: Yeah, that’s so true. I'm not sure if this is how everyone else runs their business, but I can’t advocate enough of just try to experiment with everything. You can experiment with your rate, you can experiment with how you budget, you can experiment with the kind of clients you take on, how you bill them, the kind of work you can take on – just keep on running experiments and take notes and be introspective or have little [inaudible] each little experiment to kind of determine what works best for you. CHUCK: Yeah, I kinda like that. It’s the same approach as Agile Lean Startup, depending on how you wanna spend either ne, where you try something different then you evaluate the result – then doing that with life – it kinda makes sense. So one other thing that I'm curious about – and I've talked to a few people who have had this problem as well – and that is, how do I get my wife onboard, or how do I get my husband onboard? RYAN: With regards to savings? CHUCK: Yeah. CURTIS: My wife got me onboard when we started the whole paying off all our debt and saving, she said, “Hey, read this book” and I said, “Okay.” She is totally the saver; I am the spender. RYAN: And I think that’s one thing to identify is, maybe identify if one person is more of a spender and one person is more of the saver in the relationship. I can’t remember exactly how my wife and I got into this, but I think when we did marriage counseling before we got married, there was a whole section on finances and I think naturally, we realized that I was always looking at numbers, I was always looking at our receipts and all that stuff so that my role actually became the role of the saver in the relationship. But I guess it’s just communication, just getting on the same page, kind of – again, coming up with data, like saying, “Okay, this is how we’re running: we’re running kinda hot like we’re spending more money than we’re bringing in. If this continues, we might have to sell the house, or move into an apartment or something. Or if we can set aside this amount of money, maybe we can hit all those disasters off.” It’s just like with clients; just keep the conversation lines open and kind of try to empathize with where your spouse is coming from and kind of paint the prose in a way that she or he would understand it. CURTIS: Yeah, I know Eric questioned me in the back channel about us having savings on both sides and as I said to him in the back channel, it makes my wife feel safe, which is why we do it that way – why we have three to six months in the business and personally, because that’s not –. If we were saying $100,000 then we’re starting to maybe push what is a reasonable amount. But if I say $10,000 and my wife says $15,000 - $15,000 it is. It’s not that big a deal, right? If I say $10,000 and she says, $70,000, then we have to have more discussions around what the proper number is. ERIC: I’ll say, one thing you need to be careful: don’t rely on just data. Some people – I am a data person. I deal with finances, I deal with the numbers, and so I can be persuaded with data, but not everyone can be and you have to remember that. My wife, if the data interests her like, “Yeah, if we lose the house, that would suck.” But what's more – not persuasive, but what works better and she can actually understand better is the emotional aspect. It’s not so much the “we’ll lose the house,” it’s “we’d have to move back in with your parents, and you don’t want to move in with your parents and have to deal with that every day. How stressful would that be?” Kind of the emotional side of it. I guess she didn’t really get onboard with the budget so much as we found different reasons to do budgeting that worked for ourselves. Like for me, it’s the data, it’s seeing the numbers go in the direction I want; for her, it’s having the life she wants, feeling comfortable and safe with her finances so she doesn’t have to worry about it. And so I think you have to find what triggers each person in the relationship has and figure out, “Okay, how can we address that trigger?” Or Curtis was talking about his wife – I know she’s a heavy saver. Just having that money in the bank’s going to make her feel better, so their budgeting needs to account for that. And I think it comes down to communication, it comes down to being open, and not making it a struggle, like you're trying to pull someone along the path but make it where you're both going along it. RYAN: Yeah, the big word for that throughout your entire description is being empathetic. Empathy and communication is just kinda seeing the world as they see it and trying to paint a picture that makes sense to them. CURTIS: Yeah, even when we started our budgeting stuff, I didn’t really care. But my wife did, so I said ok and just bought in. I still hate budgeting all the time, I’ll admit that. My wife does it; my wife does my business, but I hate it all the time. But it is useful to her, and I understand that it’s useful to my business as well, so I let her do it and follow up with it and talk about it, but I despise any of it. I don’t like it. RYAN: That’s another thing that I've done these first two years is I try to take a tackle on all heavy lifting with the business – the accounting, reading the legal documents, kinda just education myself. But when it gets to the point where it’s just too painful for me to handle, that’s the point where I start to delegate. That’s kind of another way that I use my emotions to drive off business things. CHUCK: I have to admit, I'm not very good at budgeting for the business. How different is it then just budgeting for your household? CURTIS: I don’t do a monthly budget, but I know that I need to – like we sat down, did my expenses for the year. I have my budget, I need to save x dollars per month to have my new laptop. Every two years, I look at replacing one of my desktop or my laptop, so I need to save that all the time, right? I know what my expenses are; we check in on it every couple of months. My wife and I sit down together and make sure we’re on track with the spreadsheets to hit what we expect, but we don’t do it regularly. ERIC: Yeah, it’s kind of the same. I do – I don’t remember what it’s called, but I don’t have hard budgets for each category – I have a “I don’t wanna spend over this amount” and that’s why I do kind of a yearly review to kinda figure out what my averages were and use that as kinda I'm going to project, I'm going to be around this, but if I'm high – like last month, I was high on travel because I pre-purchased some airline tickets that are going to be used later. But I don’t care about – I don’t need to budget for that in my business. I know that it’s going to come out later on because I'm not going to buy something that I thought I wouldn’t need. And so I just took it like, “Okay, here’s the amount of expenses I have, here’s the categories I'm going to probably use and just use that as a rough guideline.” And then like I said, every quarter I go through and do an audit and just drop stuff I don’t need or gets too expensive. RYAN: Yeah and that’s something that I think my accountant told me that I had realized is, you don’t wanna get bogged down in the details. You don’t want to get bogged into the details of the daily transactions. When you're looking at all these numbers and things, whether it’s for personal or whether it’s for your business, you just wanna look at the high level overview – whether that’s month-to-month, whether that’s quarterly, whether that’s yearly – you just want to have a high level overview. Regarding your initial question, Chuck, was to me, I budget the same way for my business as I do personally, and that’s kind of why this transition to running a business has gone smoothly for me. It’s just because I brought all the lessons that I learned with budgeting our personal finances over to the business and I just kind of used the same concepts. ERIC: I’d say, if anything – and this is for freelancers – business budget gets a lot easier. You typically have a lot of regular transactions, like every month, subscription services and stuff like that; you might have a couple of big ones throughout the year, but that’s the bulk of your budgeting versus personal, like you're going to have groceries, gas, little things here and there, and so the sheer volume – I think personally we have ten times more transactions a month than we do on the business, and that’s just because I don’t have to get a lot of things. I don’t go out for a lot of business meals and luncheons and for personal stuff, it’s like, anything you buy is going to fall into that. CURTIS: I know when we looked at my budget, we were just talking yesterday I'm wanting to go to a $10,000 conference around business stuff for myself and my travel budget this year does not match that, so cutting back on travel this year and kind of rolling some funds over into next year is our plan as far as budgeting. We didn’t sit down and do the math specifically, but how much we need to go rolled over, but making sure that there's a few thousand dollars left this year and then spending next year on it. CHUCK: Yeah, that makes sense. Do you have tips for being able to cut stuff out? I guess you just cancel the service or whatever but I'm making stuff up. I’ll give you an example of what I mean. For example when my wife and I started looking at our budget, we’re using You Need A Budget –YNAB, which is some software out there that works pretty well for that, but we found out that every time they tracked it, we realized, “Hey, we eat out at restaurants a lot more than we ought to.” So I've done some things – I went and signed up for Allrecipes; in fact, I’ll probably pick this for the show but you can actually put together a meal plan and it’ll give you a shopping list so then I just go to the store and I buy stuff. And then if I managed to make dinner, then we don’t eat out as much. Are there other things you can do in your business or in your personal life that will help offset some of that? CURTIS: I find moving to cash was the best thing, right? I talked about it last – I'm on the last show where I put $75 in my Starbucks card every month and once I'm done, that is my business expenses for Starbucks; I cannot spend anything else. Moving to cash for groceries, we had friends save – they're spending $800 a month and they got that to $400 by spending cash in two months. They got cut that much over the grocery bill. There was stuff they just didn’t know where money went to. RYAN: Yeah, for one thing though, with personal stuff, it can be kind of hard especially if you have a spouse. Because usually, what this translates to is kind of like a lifestyle change, like in your example Chuck where you say, “Oh wow, we’re eating way too much,” and the you kinda come back to your spouse and say, “Well, maybe we should eat less” and then there's their reaction that’s like, “Why do we have to go and eat less? Why do we gotta do this?” and all those things. So that’s a little bit harder, so I haven't found really good tricks for that. For the business, what I've looked at is I've taken this month-to-month overview, I’ll just look at things that I just don’t use anymore. Like for instance, I was renting out an office and I was discovering that I was only going in like two or three times a month. It was a co-working space office, like office space, so then I just kinda dropped that. Or I subscribed to a lot of things, like there was this Destroy All Software before and Railscast and all those things, and I discovered that I really wasn’t watching this many of the Railscast as I was Destroy All Software, so I just stopped subscribing from that. I guess it’s just looking at the high-level overview and finding what I would call the easiest wins, and I guess if I was to bring this back to the personal side, maybe the easiest wins for me wouldn’t have been eating out less. Maybe it would have been not buying a video game once a month or something like that. I don’t know, I haven't really looked at the personal stuff as much lately since I transitioned the business, but I guess that would be one thing. ERIC: It’s a value thing. We’ve had the same problem; I told my wife, “We need to stop eating out as much; we’re spending a lot of money there. Personally, I look at eating out as just another way of getting food – that's all it is.” But from my wife’s perspective – and this is kind of what I was talking about earlier where you have to know the person to understand – she looks at eating out as a social thing, as a going out as a family and building connections to the people you're eating with. And so I would say, “Yeah, this meal isn’t worth $25 because I can make this at home for $5,” she’s looking at, “This meal’s worth $25 because I now have a stronger bond to my family.” And so what we came to realize is after we looked at it from that perspective is, yeah, we might be spending a lot going out, but the value we’re getting from it is so high that it’s worth it. So we just decided that, “Okay, we’re not going to look at that budget; let’s just go look at some other, another thing or another place. Like maybe, because we’re getting a social connection from eating out, maybe we don’t need to have as much of an entertainment budget or something.” CURTIS: Yeah, and the things you do in that case too is to say, say it’s going to be $100 a month, right, and then just don’t care – you can spend the full $100 in a month – that doesn’t matter. That gives the freedom to the spouse or to the other person to spend that money and you don’t have to worry about it and you cut somewhere else instead, but puts a cap on it so that you, as the saver, don’t feel like we’re just overspending all the time on this one thing. CHUCK: Yeah, that makes sense. ERIC: I mean, you go apply it to your business. I've had services, like training [inaudible] screencasts off or whatever where it’s a recurring thing every month and I wasn’t watching it and so the value I was getting each month was effectively zero and the cost was $20, $30, whatever, and so I canceled it. Training is one of my bigger budget items in business, and so there's always a lot of [inaudible] I can take out of that, and the biggest thing is with training, a lot of the investment isn’t actually dollars – it’s time. So if you spend a couple hundred dollars a month on training, you may not have the time to consume that, and so I kinda realized this a couple of months ago and really looked at everything I was paying for and I'm like, “Okay, this might give me good value but I'm actually not using it” and so I've reduced a lot of my expenses there, but I like focusing on maybe one or two different products or programs or whatever that I'm actively in. And when those are not valuable, I'm going to cancel them and then move on to something else that’s going to have more value. But it’s the idea of not worrying about grabbing everything and hoarding it, which is kind of what do I need just in time. CHUCK: Yeah, that makes sense. Alright, anything else that we wanna add to this before we begin to wrap up? RYAN: I guess one thing I’ll ask is, is this – for you, Chuck, since you're on the other end – is this all kind of overwhelming, or does this help, or what kind of things are you finding out in this? CHUCK: For the most part, a lot of the stuff that I already heard, and I'm pretty comfortable with a lot of the concepts. For me, it’s just figuring out how to be disciplined enough to do it and so I kinda have to attack things one at a time, is the way that I usually manage it. But the fact that I have actionable things that I can go do, so for example, I can think of a couple of subscriptions that I don’t use anymore; I can also think of a few things that, for example, I have a server on Leno that cost me a whole lot more than it could cost me on DigitalOcean, and so I could actually migrate all of the data on the one server over to the other and things like that, and find ways to cut back on what it costs me to do things. The big things that I spend money on in my business are usually related to the podcasts, and so I need to look at that figure out, what makes sense to be paying for at one tier, and what makes sense to be paying for another tier, be that the different things that I do. I think I have a pretty good handle on that already; I offload a lot of things to oDesk, and I have Mandy doing the things that I really feel like she needs to be doing, to speak to one expense that I have, but to revisit that and to know that I'm paying attention to it makes a lot of sense. So it’s not overwhelming – I don’t really get overwhelmed anymore because basically what I usually wind up doing is I’ll attack things from the standpoint of “This is what I think I can accomplish” and “This is where I'm at” and just kind of figure that out from there. Then I just prioritize things and if I don’t get to it, I don’t get to it. And I know that some of this stuff is stuff that I have to do, but at the same time, I only have so much time in a day and certain things are definitely going to be more important than other things, so if I have to push it off, then I'm just going to have to push it off. But yeah, that’s kind of where I'm at with a lot of this stuff, so. ERIC: You gotta respect the amount of time invested, especially if you're billing your time – that's an indirect cost. Today, I had a couple of domains I'm renewing, so I ended up – I'm not going to renew them. It saved me $30, but it only took me about 5 minutes to log in and check some check boxes, versus moving the server, you might save $50, $100, maybe even $200 a month, but if that’s going to take you a week’s worth of work, that might not be the best way to cut your expense. It’s kind of financial advice I've heard like, sometimes, look at your stuff and evaluate it, but sometimes it might be better to work and put your time into actually increasing your income instead of cutting your expenses, because no matter how hard you cut your expenses, the lowest you can get them is zero, but if you work really hard on the income side of it, there's no limits. If you make two or three times the amount of what you're making now, server expense that’s twice as high really is like a drop in the bucket at that point. CHUCK: Yeah, that’s true. I guess that makes sense, going in and canceling the subscriptions that I have is going to take me only a couple of minutes, but moving that server over is probably going to be kind of painful. RYAN: I guess someone put this to me pretty elegantly and I guess I didn’t really understand until most recently. They said that the role of financial advisers are more of psychologists rather than people telling you where to put your money. Their rule is just to objectively look at your money and say, “Hey, this is where you should do this” or “Hey, this is where you should do that” without all the emotions and the baggage. But kinda speaking to you, Chuck, I definitely understand the overwhelming way of trying to do everything and things just fall through the cracks and it sounds like – you got the right perspective; it’s just kinda getting those little wins and just keep on moving in the right direction. CHUCK: Yup, and I honestly think like some of these things become habits. And I wanna talk a little bit more about that too in the sense that I tend to put things into my calendar, and so I have things in my calendar or in my to-do list – one of my many to-do lists – that basically prompting me to do things a certain time. One of them is on Friday – I go into Allrecipes and I find a handful of recipes; I print off the shopping list, and then I make sure I go to the store Friday night, Saturday morning, or even Monday morning, and make sure that I have everything lined up for that. And so if I can make a system out of enough of these things, then they just happen. So the things that we’re talking about here with budgeting and just being on top of what I'm spending and where I'm spending my time and things like that – and a lot of this comes out of getting things done – but I just make sure that I get that in the schedule, and then I just make sure that I evaluate things and schedule the time to evaluate things. So this is really just going to go into my calendar for Friday, and it’s going to be look over subscriptions and see which ones I'm using, which is going to be not many, and then I’ll go cancel the ones that –. It’ll either be put in a regular schedule to go watch the videos off of it, or give it up. And if I'm not willing or able to put it in my schedule, then I can cancel it. And just doing those things – scheduling time to do the budget, which is something that I've wound up having to do – my wife –. If you're familiar with the Dave Ramsey terms, my wife is the nerd and I'm the free spirit. In other words, she would more typically be the saver and I'd be the spender, but she hates budgeting worse than I do. So that’s kind of something that I have to go ahead and do, but at the same time then I have the information so we could sit down and say, “You know, how do we feel about this and where are we at with it?” and we can have those conversations and make those work, but if I don’t put them in my schedule, they won’t happen. And so really, if I can make a system out of that, if I can make a system out of some of the things that I'm doing that are going to save my business money or my family money, it’s the same thing with putting away 35%-40% you guys were talking about, right? It’s a system – the money comes in and you don’t think; you just transfer. And so, just doing that kind of thing is the kind of thing that makes a difference, where it’s so automatic that it’s not really a decision anymore. ERIC: Right. CHUCK: And then it just happens, and then it works. I think if you kinda have to trip over here and remember to do it there, it won’t work. At least for me, it won’t work because I have to make it deliberate; I have to make it a habit. ERIC: Habits are an important thing. I've mentioned in past shows how every week I call it balance finances, but that includes  balancing a check book, paying bills, if I have to move money around, whatever, and that’s a habit I've been doing for years now. I don’t even remember when I started it, but I know why we started it. It was because we put everything on our credit card for our personal stuff and we pay it off every month, because we’re getting cashbacks or [inaudible] getting a little discount. Well one month, I was kinda haphazard with paying bills and we were like a day late, and so we actually got charged an interest because we were over that “you have to pay interest, period.” And it was like $20, maybe $30, but that was painful enough and it’s painful to me to know I thought I had the discipline to never pay credit card interest then I made a mistake and I got charged it, that I basically did that weekly habit. Since then, it’s been on auto-pay. I know on the weekend, this is what I'm doing and I know the reason why is because I'm trying to avoid paying bills late or getting to a week and realized I should’ve transferred money earlier. Now I have to scramble to get it together for a tax payment or whatever. And now that it’s a habit, it’s like – it’s no brain power; it’s no decision-making ability – I just have to sit down and do it. And because it’s a fully-ingrained habit now I’m actually able to change it. I've restarted doing a budget so I put a little bit of time in to add this new task to that habit of balance the budget and it takes a couple of minutes to do, but it’s now a new thing that we’re doing and it’s improved across the board. And so yeah, if you can get a habit for any kind of financial or any kind of business [inaudible] thing, it’s just going to be an improvement across the board. CHUCK: Yeah. The other thing that I noticed is that I can’t fix something that I'm not aware of, so I just – I need to track it, and we’ve talked a lot about that. But that’s what your budget does for you; if you're keeping your budget or keeping up your budget, you know where you're at with [inaudible] to it, you know where the money’s going, you know where it’s coming from, then you can start to fix any problems that you have and start getting to a point where you have the freedom and peace of mind that we’re talking about with savings [inaudible]. ERIC: And I think, at the same time, you need to be kind to yourself. Like if you don’t have this stuff set up, or you're making mistakes – address the fact that you need to make changes, but don’t beat yourself up about it especially if you, you know, we’re talking about how finances and emotions work. If you're beating yourself up because you're sad, you're just going to make yourself even sadder. So acknowledge that you might have a problem or there might be something going wrong and just work towards fixing it – don’t try to dwell on it. CHUCK: Yup. RYAN: That’s an awesome point. CHUCK: Well, I feel like there are things I can do better, but at the same time I feel like I've got a lot of strategies from you guys that will help me move ahead with this stuff, so I'm excited. ?Let’s go ahead and do the picks. Eric, do you wanna start us off with the picks ERIC: Sure. This one I actually picked – well I didn’t pick it; I found it a while ago, I didn’t even realize it but it actually relates to this episode a lot. It’s this post by Seth Godin – which you probably know by now; I read his blog every day. The title is What does “it’s too expensive” mean? And it’s a blog kind of about pricing, value, all that, but kind of [inaudible] down to finances; it’s actually a pretty interesting thing to think about. And it’s very subjective – it’s the idea of, is a $2 bottled water worth it to you? Well would it be worth it if it’s someone in the desert? It’s a short post like most of Seth’s posts, but it’s really good. It kinda makes you think about it. CHUCK: Very nice. Curtis, what are your picks? CURTIS: I'm going to repick The Total Money Makeover, which I picked at some point long ago, because it put me on a proper path of budgeting and finances. CHUCK: Cool. So I'm going to pick – it’s funny, Mandy gives me a hard time sometimes about picking the same thing on multiple shows, but I do four shows in a week, so if it’s cool I'm probably going to pick it. One thing that I'm going to pick – well, I’ll pick YNAB: You Need A Budget. It’s a really handy program. And basically, what it does is – one issue I have with it is that it doesn’t directly import my bank’s information, so I actually have to go and download a QFX, or Quicken file, and then import it in. But after that, then I can categorize all my expenses, so I just need to do that periodically. It’s not a terrible process, but there you go. And my bank actually keeps track of what's gone one since the last time I exported from them, so all I have to do is go in and say, “I need a quicken file” and it’ll say, “You want this account?” And I just check the account, and then it has the last – it knows where it left off, so it doesn’t duplicate the transactions. And then YNAB will actually sync over Dropbox, so that’s pretty handy as well. One other thing that I have been playing with lately – there was a talk at Mountain West Ruby Conference last week, and I'm going to pick something from one and something form another. The first one was Ryan Davis gave a talk about the Users Group, and the users group talk that he gave basically talked about the way they do things up at Seattle RB. And the interesting thing was that he talked about that they get together every week and they have a study group, and then they have the hack night, and so I actually organize something like that here if you're in Utah, please come. Otherwise, go watch the talk and get some ideas for how you can get together and do stuff. I'm doing the meetup down here at Starbucks which is a few miles from my house – that'll probably change because I'm sure there's a better venue for it, but Starbucks has Wi-Fi and it’s pretty close to public transportation, so that’s kind of what I picked. The other thing that I'm going to pick is I found –. There was a talk – it might have been at a JavaScript conference; I don’t remember for sure – but the talked about iBeacons, and somebody mentioned that you can actually make an iBeacon with a Raspberry Pi, so I'm going to put links in for all the stuff you need for iBeacon Raspberry Pi and the article that I used to set it up. I'm still playing with it, trying to get it together to work; I just have little pieces on my desk right now, I haven't actually put them all together, but it seems like a fun project and I have a couple of ideas of things that I would like to do with iBeacon, and so I'm looking forward to playing with that. So those are my picks. Ryan, what are your picks? RYAN: My first pick would be Mint.com; I think there was a different OSX app that I was using when I started doing all this budget stuff, but Mint.com is just a web app that I was using to get my initial feet wet in budgeting. It allows you to specify all your credit card and bank accounts and it imports all the transactions, and then you can set up rules to autoclassify them. Once you autoclassify them, then you can create budgets around that, so kinda give you a very high-level review of what your spending is looking like. Another pick is super simple, but I'm not sure if a lot of people are aware of it. On your iPhone, in the settings, you can actually use restrictions to turn off Safari. As someone who works at home and has kids, I kinda try to separate my work life from my home life, so I tend to turn off my email and Safari and everything like that when I'm with my kids and my family. It’s actually helped me have more or better quality time with my family away from work. And I guess for just a fun pick that I've sprung up a couple of weeks ago was that 2048 game – I'm not sure if anyone’s picked that yet, but it’s a really addicting game. It was written in JavaScript initially; if someone on the show listens and gets addicted to the game, you guys can ping me and yell at me at twitter and I’ll come up with some kind of flowchart to help you guys beat the game. But what's been really cool about it is seeing all the responses to it, because it was open-source and it was written all in JavaScript. People have written AI engines that try to solve the game, they’ve done imitations and said they’ve done importations in Bash, and it’s really taken off; it’s been pretty cool. So yeah, I definitely recommend checking that out or all the cool side projects that kinda sprung up because of it. The last thing, and this is the Wayback Machine. As far as my business is concerned, sometimes I look to how other people that I admire and I respect in other businesses, that I admire and respect and I use the Wayback Machine to kind of look and see how those businesses have evolved over the years, how their websites evolved over the years. And I've kinda try to question as, or I try to put myself in their perspective or their shoes and question why they did the things that they did with their site or their services and things like that, and kinda use that, those lessons with my own business, so I use the Wayback Machine on that. And that’s it. CHUCK: Very nice. Alright, well thanks for coming. I really appreciate you taking the time and talking to us. RYAN: Yeah, it was awesome. I really appreciate you guys having me. CHUCK: Alright, well I don’t think we have any announcements, so we’ll wrap up and we’ll catch you all next week. [Hosting and bandwidth provided by the Blue Box Group. 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