The Ruby Freelancers Show 025 – Managing Finances

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Panel Charles Max Wood (twitter github Teach Me To Code Rails Summer Camp) Eric Davis (twitter github blog) Discussion Have 3-6 months of expenses in an emergency fund. Manage Expenses Evaluating Purchases Place large purchases on a wishlist, wait before purchasing. Deposit to emergency fund to cover large costs that are on the horizon. Personal Finance Management Give yourself an allowance. Retirement Investing Dave Ramsey Put away a small amount each month for taxes. Determining the size of your emergency fund. Writing off business expenses when there is personal activity included (check with your tax accountant). Picks Scared Shitless - Merlin Mann, Webstock 2011 (Eric) Air Compressor (Chuck) Hydraulic Jack and Jack Stands (Chuck)


ERIC: I know what I'm doing with it. CHUCK: Yeah, let’s do that. Then I can ask you all my dumb questions. ERIC: Yeah. And I can harp on like, “You have to do this. You have to do that.” [Chuckles] CHUCK: Yeah.[This episode is sponsored by Harvest. I use them to track time, track subcontractor’s time, and invoice clients. Their time tracking is really easy to use; invoicing includes a pay now function by credit card or PayPal. You can sign up at Use the code ‘RF’ to get 50% off your first month.]**[Hosting and bandwidth provided by The Blue Box Group. Check them out at] **CHUCK: Hey everybody, and welcome to Episode 25 of The Ruby Freelancers Show. This week on our panel, we have Eric Davis. ERIC: Hello. CHUCK: And I'm Charles Max Wood from I guess we're not really a panel, are we? ERIC: Yeah. CHUCK: So this week, we are going to be talking about managing finances. It was funny when we decided like two seconds ago to talk about this. Wow, here is an entry in the form there, but anyway, it was funny because I started talking about what I'm idiot I am with managing money, and Eric says, “Oh well, I'm pretty good with that.” So this is probably going to turn into, “Chuck, you are a dummy. Don’t do that anymore.” [Chuckles] ERIC: Yeah, just to clarify, I'm good at managing with money not the “I'm going at being an idiot.” I'm still practicing on that part. CHUCK: Yeah, get on it. So anyway, there is a question here that says, “How do you know what you can afford to buy? Should you be saving money for later? Investing in a retirement account,” that kind of stuff. So I had a little bit of a money crisis here lately, and I don’t know if I should talk about this probably, but I really don’t care, so I'm going to. I had a client that took a little bit of extra time in paying me. And then on top of that, it took it over to the bank, and the bank, they graciously held the funds for five days. Thanks, bank. So the whole situation was kind of a headache. And I pretty much burned through all the emergency fund that I have in place. Any credit cards I had that I could live on while I was waiting to get paid. So now, we are paying everything back off, since I get a check. I haven’t gotten all the money from them, but I got a check, which can kind of bring me back current with everything.  So is there a good way to avoid problems like this other than having money in the bank? ERIC: You need to have, it's called an emergency fund. It's basically 3-6 months of expenses. And in my case, I actually considered my salary as an expense. So that’s kind of the main thing you wanna do. CHUCK: That’s for your business? ERIC: Yes, my business has it. And it's just a plain savings account. Don’t worry about getting the best interest rate on it, it's not for interest. And then I also have MX cards which has I think like a $10,000 limit. A pretty decent limit. I mean, when you are a freelance, you don’t have many expenses other than paying your salary and then if you have subcontractors and stuff. That’s the two things you can do: either your cash, or you have the ability which to use a liability with is a credit card or you can get like a small business loan or a home equity loan for that. CHUCK: Right. So you can use I guess or liability or debt to take cover it to? ERIC: It's kind of like what you said you do with the credit card. Credit cards are the worst because of the interest rates, but all debt is kind of the same way. And the point is you wanna use that kind of thing when you know you are going to be getting cash pretty soon at the end and you just need to float a few weeks or maybe a month. Because then, the interest rate is just kind of the cost of doing business. CHUCK: It's frustrating too when you are out of money and you have upwards  $20,000 or $30,000 and invoices waiting to be paid. ERIC: Oh yeah. But if you actually ask any mom and pops style of business who has employees, making payroll every month or every two weeks is always a huge headache, just because they might have all these receivables there, and all these people that owe them money, but they don’t actually have cash. And so that’s why a lot of business books talks about how important cash is, and they have like the thing like cash is king, and you can be profitable on paper like a lot of .com startups. But if you don’t have cash in the bank, your business can still die. CHUCK: So do you have a budget for your business every month then? ERIC: No. I've done that for personal stuff. Budgets to me are really restrictive, because it's like you just have all these little buckets and it's like if one bucket gets too full, you blew your budget. And most of my stuff is like subscription type thing or server hosting, so it's pretty regular. But I just found that the budget process took a lot of time, and it was never correct. It's like estimating software; you can put a lot of work into it, but you're never going to get it perfect. CHUCK: [Chuckles] Instead of getting how long it's going to take or how much it's going to cost the client, you're guessing how much you're going to spend on it? ERIC: Exactly. What I do know, I think every 3 or 6 months, I look through what my expenses are, what I'm paying for, and try to get rid of some. I think a month ago, I went into that and basically have $200 - $300 with expenses. And then over time, I'm subscribing to more things or buy more things here and there and some one-off purchases. And probably this winter, I'll go back, look at it again and get rid of some other stuff. And it's kind of the idea I get rid of expenses that don’t contribute to your productivity, or you are actually creating revenue or creating value the most. CHUCK: The thing is like I have some equipment here that my audio equipment and things like that, that it's nice to have. I mean, it's especially nice to have when I have to record a podcast and things, but I tend to find things online that I really would like to have and would make the process easier. And sometimes I buy them because I feel like it will save me some time, and sometimes I’d buy them just because I think they are nifty. And sometimes I don’t buy them because I don’t think they are really going to ever pay off as far as time goes. But is there a way that you evaluate that? ERIC: Not like a hard way, but if it's a good month, like you had a lot of work and you know people are paying their stuff on time, you can kind of spend more money. Typically, that’s like something I know is going to be useful. It's like $20 maybe $30, I'll buy it. Most books and screencast kind of fall into that category. When it starts pushing $75, $100, $200, I kind of put it off. I'll typically look at something and be like, “Okay, that’s cool.” And I'll put that on my wish list or like the list of things I want to buy later and I let it sit there for a couple of months. And if in a couple of months, I still wanna buy it, then I'll go and buy it. And larger things like computers or like my iPad, where it's almost $1000, I sit on those purchases about six months to twelve months. And especially with technology because it's going to change, and so I'm like, “Okay, I wanna get a top of the line laptop. I'll spend $1400. Let me look at some right now. It doesn’t look that great. I'm going to wait another six months.” And that’s what I'm doing right now with my laptop, I'm just kind of waiting it out to see what comes up and then I'll buy this. CHUCK: That’s another purchase that I really wanna make. The laptop I have, I've had it for 4 years and it's still in okay shape, but the power supply started going out on it. And I've heard that on this particular model of MacBook, once things start to go downhill, everything else starts to go with it. And so, I'm wondering if I'm going to be forced in the position where I have to buy one within the next few months. ERIC: You can use the emergency fund for that too. If you know your laptop is dying, you can put aside $1000 - $1500 in the emergency fund. It could be the same account. You could just kind of like market it as for a laptop, and basically run the laptop you have into the ground. And then when that happens, you have the cash and you know what you are going to buy, and you just buy it. I've had that happen with my old desktop. It was I think the video card went out one time. The computer wouldn’t even boot up; it just completely went out. And so I was on my phone and basically ordered a new video card and had it overnighted and next day, it was back up and running. CHUCK: Right. And those kinds of things where you really can’t even function for work without it. I mean, those things are definitely emergencies, and you just pull money out of the emergency fund and taking care of it. ERIC: Let’s be honest here, even if you get a high-end Mac and it's $2000 or maybe $3000 if you get everything checked out, if you are doing like Ruby development as a freelancer, that’s maybe half a month of billables, maybe a month on the low end. You can make that back relatively quickly. And so if it's a matter of like, if you are working on like a PowerBook G3 and you are like, “I don’t know if these new Macs are going to be fast enough for me,” you are probably going to get a huge productivity boost just from that. And consequently, you should be able to bill more and be more efficient. Realistically, what freelancers only pay for is our computer, our internet (whether it's at home, at an office, or at a coffee shop), and then hosting – those are our expenses. CHUCK: Yeah. And then any services and tools that we need to run our business. ERIC: Yeah, but those are with the one person company, those are what, $9, $15, maybe $30. It's not that much. It's not like you have to buy like a factory with $100,000 piece of equipment. CHUCK: Absolutely. So you just look at what you are bringing in every month, what you are putting out every month, and then make a plan to put away so much every month, so that you can cover future expenses, should things slow down or you wind up waiting an extra couple of weeks for payment from a client. ERIC: One freelancer told me he basically decided that every year, he's getting to get a new Mac laptop, a new iPhone, and then accessories for that stuff. So he said, “Every year, my business is going to have about $25,000 in equipment purchases.” And he even broke that down and he says, “I need to have like $200/month to equipment. So in some years, he's like, “I'm not going to buy anything. And then the next year, he might buy a laptop, and an iPad and a new monitor, whatever.” So it might be a little more, but he had that in his head, like his cost of doing business it happens once a year, but it's going to be $200/month to stretch that out. So he figured that out into his rate and all his financial planning. CHUCK: That makes sense. So, when you set your rate, do you base it on how much you think you are going to need to make everything balanced? Because that sounds like that was he did or do you actually just bill however much you think you can get? ERIC: If you do it based on you cost, it's called cost plus pricing, it's like $200/month for computer systems, $50 for hosting and all that, if you do that, you're going to end up with a rate of like $5/hour because we don’t have much expenses like that. To be honest, my expenses are around $1000/month, but of that, I have $200-$300 in like training and education each month. CHUCK: Right. And then the rest of your expense is your salary. ERIC: Yeah, and I have a salary on top of that. But it's like $1000 of like actual expenses and subscriptions and stuff like that. And I mean like realistically to make that as a rate, that’s a really low rate versus what the market will bear, what my value is, what I actually give to the clients. And so I’d take that into considerations of “I need to make this much to cover the cost,” but I set my rate based on what I'm doing for a client, what they are going to get out of it, and probably thousands of other factors that just goes through my head. CHUCK: So do you just pay yourself the same amount every couple of weeks, or every month? And then everything is just retained by the business? ERIC: Yeah, and I pay myself like nothing like I should, but I pay myself enough on the personal side, like we have enough money to do what we need to pay our personal bills. And then I keep the money in the business just because the way stuff are structured, it's easier to keep money in the business, than it is to take it out and put it back in. CHUCK: What about personal finances? Managing your money after you pay your salary? Do you sit down a  bunch of things with your wife? How does that all work? ERIC: I come from a heavy finance background, and we try budgeting a lot. And same with like the business stuff, it felt like a lot of work to do, and especially when you bring in my wife, it is for two people to coordinate and do that, it's a lot of work. It takes a lot of time. If you don’t have a lot of financial discipline, it's a good thing to do. And it's actually a good thing to try for a month or two, just to kind of see where stuff is. But right now, we basically just know, “This is how much our mortgage costs, this is how much our car is, how much we are paying with gas.” And so we know we are going to pay this much amount plus or minus a bit. And  we actually have allowance, where each of us gets like $125/month, that we can blow on whatever we want. So like for instance this month, I bought a whole bunch of running things. And it's like I don’t even have to ask her permission to buy it, I just buy it. And then same for her, she goes out to eat a lot at work, so she can just go out, get whatever she wants. If she wants to go get some stuff for some hobby she does, she just goes and buy it. She doesn’t have to ask for my permission. And then everything else, it's kind of like we have back and forth, like, “Okay, do we need to get a new refrigerator or do we make this one last?” If we really need to take a vacation in December or that sort of idea. And that kind of goes back to what I was talking about, where I have a set salary, and she basically has a set salary for her employer, and so with those two, we kind of figured out like, this is the lifestyle that we can maintain with those salaries. CHUCK: Right. We don’t have as much discipline as we should, so for me, I think I we would sit down and start doing budget and things, and figuring things out. But we really haven’t nailed a lot of that down, I think that’s gotten us into trouble that we could have avoided if we had actually been aware of what we're doing. And I really liked the idea of doing the salary. Just the monthly salary and just say, “Look, we are going to get paid on the 1st and 15th, and we're going to bring in about how much.” And just do it that way. That way we are aware, and we're just saying, “This effectively gets us to where we can. Eat out these couple of times. We can go in a couple of dates.” And other than that, we need to be doing these other things so that we stay under that line. ERIC: Especially if you have a corporation. In my case, I have an LLC, so it's not as strict, but you kind of have to do that. Like you have a corporation and then like, “I'm going to pay myself $4000 this month and then $10,000 next month. That’s really weird.” And I don’t know local law or whatever, but that could be against the law. What I do for mine is every year, you have like a meeting in your corporation or LLC, that says like, “These are the new rules, these are the changes.” And at that time, I say like, “We, the LLC are going to pay Eric X amount of dollars per month for this year.” And so that’s my salary. And then if it changes, then there's a formal notion or whatever, meeting the LLC members to change the salary and give me a raise or cut my time, or any of that weird stuff. And so that’s really formalized in that way, you bring someone else on. It's not like discrimination that the CEO is getting like his salary changes every month, but this other person his salary is set. CHUCK: I've kind of gotten the impression here that it's not as strict that way. So I've tended to just pay myself whenever the business got paid. And I really liked the idea being regular about it though, and then I can just sit down with my wife and say, “Look, this is the budget every month. These are the constraints we're going to be under.” We can figure out what that number is, so that we are comfortable with it, and then just kind of run from there. It really  appeals to me that way, and that way, I can put the rest of it in the business. And then if things are a little bit lean, then I can pay the subcontractors instead of waiting to get paid, so I can pay the subcontractors or this or that. ERIC: So I just got back from basically two months of leave for my daughter, and the first month, I had about half the income that I normally would, just invoice is taking time to get turned to a check. And so that month was fine. But then in July, because I wasn’t working, I was still paying my salary and paying expenses. I actually pulled money out of the emergency account to make my own payroll. And so, it make it really structured of like, “Okay, it's the 10th right now or whatever. We need to pay Eric soon. How much do we have on the account? We don’t have any on the account.” So we are going to pull some from the emergency account. And so it's very structured, very regular process. And then at the end of each month, what I do is I clear my account. So if my checking has an extra $2000, that gets sent back to the emergency account. And so I always keep it right around the minimums that needs to be in there to operate, and then everything else goes to the savings. CHUCK: Yeah, that makes sense. And when I get another check from my other clients, as I said before, I'm probably going to run over to the credit union here. I've narrowed it down to like two. And so I run over to one of them, opened an account with that check, and then probably do something like what you are talking about. And then we're probably going to move our personal account over too. And that’s always nice because I essentially just transfer funds [chuckles] to pay myself. So are you putting money away? It talks about saving money later, and I think we’ve kind of talked about that, but what about things like investing for retirement and stuff like that? How do you manage all of that? ERIC: Yeah, let me think back. [Chuckles] Maybe 5 years ago, I wrote a QT, which is a GUI toolkit for Linux. I wrote a QT app using Ruby to given your age, given when you wanna retire, given how much you wanna retire with, interest rates, inflation, I think about a dozen variables, it will actually calculate using time value money and stuff. And like, you need to put away x amount of dollars every month for the next 20-30 years, in order to hit your goal. So I wrote an app to figure this out, because all the online stuff  wasn’t good enough. It wouldn’t factor in all of the variables I wanted. And so I did that and I kind of had in my head like, “Okay, I need to put this much away.” And so now, right after I get paid, I pretty much transfer a certain amount of money to my retirement. And my wife had some that she does for her employer, a 401K. And that’s pretty much a set amount. And then she also contributes more to her IRA. And so we actually have a regular monthly amount that we contribute that should, assuming things work the way they do, when we retire should be enough to pay for the lifestyle we want. CHUCK: How did you figure out what all that was? I mean, you use to program, but… ERIC: It's a lot of personal finance stuff. You can pretty much look for it now, but it's the idea of like, you put this much away now, you're going to earn this percentage rate. And you wanna calculate like if you continuously do this, you'll have like $4.3 million or whatever when you retire. And then factor in inflation, so that’s worth like $2 million, earning like a very, very low-risk interest rate will generate, we'll just throw a number out, $40,000/year. And it's $40,000/year in today’s terms what you actually want. And so you kind of look at what you are doing now, and like, “Okay, you might have a car, you might have a mortgage, but your house must be paid off so you don’t have a mortgage.” And it's a lot of personal finance, but you’ve run through it a couple of times, and you pretty much get a number like, “Okay, this is how much I need to do.” And there's going to be so many things that change, like [unintelligible] and then there's other times that oh, it's a boom year, so you don’t really know. But overall, you are like, “Okay, I'm going to get close to where my goal is.” And who knows? Like, I mean heaven forbid, you might actually get killed in a car accident in two years, and so that plan goes out the window but at the very least, you planned for it and you kind of have an idea like if it does happen, this is how you are going to retire. CHUCK: Right. So I don’t know if you know this, I'm pretty big Dave Ramsey fan, which means I listen to the podcast. I haven’t read the book and I haven’t gone to his Financial Peace University, so I'm one for three I guess. ERIC: So you are not a big fan, you are a little fan. CHUCK: Yeah, I'm a little fan. I tentatively got my wife to agree to go to the Financial Peace University, but it was after this weight lost contest, which just ended a couple of weeks ago. And it looks like it's probably going to be after we go to Aloha Ruby Conference, just because we are going to be gone for about a week. And if we are going to sign up, I wanna be able to go to all the classes. Anyway, his plan is basically that you have, and of course this is for personal finance not for… it's a little bit different for freelancers. ERIC: A lot of personal finance actually really applies to single person freelancing stuff, because I mean legally, you have different accounts, and it's still separated, but it's so intertwined like if we bought a new house, I would just increase my salary in the business. So it's connected still. CHUCK: That’s true. There's a line, but it's not a wall. Anyway, so he says that to have $1000 in your emergency fund, and then you pay down all of your debts, except for your house. And then, you start putting 15% I think is what he says, about 15% into retirement, you start funding kid’s college fund if you are going to do it then, and you start paying extra on your mortgage, and then you pay your mortgage off. And once you’ve done all of that… oh wait, no. you pay off your debts, and I left out the 3-6 month emergency fund before you start paying into retirements and things like that. And then you start paying extra on your hose, while you continue to pay extra into retirements and things like that. And then when that’s all said and done, then you just start investing in other places to build wealth. ERIC: Yeah, and there's a lot of plans like that. I mean, that has a lot of common themes: pay off debt, save money for emergencies, stock money waiting for retirement, all that stuff. Like there’s some critiques I’d make of it, but overall, that’s personal finance. Take care of stuff, and put money away in case shit happens, and plan for the future. CHUCK: Yeah. There's one thing that I do like about the plan and that’s just it kind of gives you these steps to work through. And after talking to you, I'm really thinking that what I will do is start putting the money into a savings account that’s attached to the business, any extra that I have. And then once I'm comfortable with the amount of money I have in there, if we have enough extra that we want to pay off one of the debts, one of the credit cards or one of the cars or something like that, then I can just give myself a bonus and we can just wipe it out. ERIC: And like what we do is at the end of every year… so I do every month, like 35% out of my net income, (so what I got paid minus business expenses, but not accounting my salary), and I sock it in a different account, and that’s for taxes. And my accountant gives me like, “This is about how much you are going to have to pay,” but I put 35% away. And then typically at the end of the year, after everything gets reconciled, we'll have… he'll say, “Okay, you’ve got 3, 4, 5…” I think at one time, we got like six or seven thousand extra in that account. And so what we ended up doing is almost every year, we take a significant portion and put it into retirement, which not only gives us retirement income for later, but it also makes it so we have less taxes now. And then I think one year we bought our TV, another year was what we used for the deposit on a new car we got. And then I think last year, I just kept it in the business, just like extra, extra emergency money. And so, socking a little bit away each month for tax is a very easy. And if you don’t have like an emergency account for your business, you can just do a flat like 5 or 50% and build it up that way. CHUCK: Right. And that’s probably what I'm going to do, except I'll probably just put a set amount aside, so that way I don’t have to figure out how much to put in; I just know that I'm going to put so much in, and just kind of see how and see what that gets me, but yeah. It seems so simple when you talk about it, and it feels so overwhelming when you are thinking about it. I don’t know why that is, but. ERIC: A lot of it is uncertainty. Every person who says they have an emergency fund, they save 3-6 months. Okay, do you pick 3 months, or do you pick 6 months? Because that’s difference between let’s say $10,000 – $20,000. And so there's a lot of uncertainty of which one do I pick. Well I mean, Chuck, you have a lot of kids, so you probably wanna pick the 6 months, because you need a bit more buffer. Well, when it's just me and my wife fresh out of college, we had I think 2.5 or 3 months because I mean rent was our biggest expense, and that was I think $700/month. So it's a lot of that and a lot of like, “What if I lose my biggest client? What if I don’t get clients next week? What if this client doesn’t pay the invoice for three months?” So you almost kind of delay the transition and try not to make the decision, and then you still have the stress of, “I still need to do this. I never finished this.” CHUCK: I think you pretty well summed it up. I think that really is just you know that you need to do it, and you really… I don’t know, for me, it also comes down to the fact that I don’t have a ton of time, and so I don’t have time now, but it's super important. And so yeah, it's not so much that everything that I  have to do this overwhelming. It's just, “When am I going to get through it? I don’t know when. I have to do it though.” ERIC: Honestly, the easiest thing to do is anytime you  deposit a check, take 10% of it and throw it into your emergency fund. Worst case, you are going to have to pull money out of there. If you should put five away or whatever, but just take 10%. It's an easy number, and make it a habit of when you are writing out the deposit slip, write out a transfer or however you do it, so it's at the exact, same time. And eventually be like, “Oh crap, look at all these money I have in here.” CHUCK: Yeah, that makes a lot of sense. And then you can be intelligent about how you manage it from there. And so if you then can do a big expense, it's going to pay off for your business, you can do it. If you have some personal thing that you need to pay for, that’s not going to deplete it beyond where you need it to be, then you can do that. You can figure it out once the money is there. It gives you a lot of options. It gives you a lot of freedom too, because you don’t have to… this is the thing that really gets me with a lot of it is that if you have a lot of money set aside in the emergency fund, then you don’t have to take the jobs that you are not sure you want. You can kind of sit and wait and go, “Okay, this doesn’t look like it's going to work out, so I might take a risk on it, or I might not.” But you also have the option of just walking away. ERIC: Exactly.  And that’s the point is having the backup of money there, it gives you options. Like for instance, like I said, I just took two months off from business. I didn’t know client work brought in no real income, because I have that back up there. I started taking it, I think this month, I started drawing a little bit out, but if you have a new kid, the first two to three months are like hugely important. And being able to spend as much time with as I could, that's an opportunity I had because I have that account. And right now, some of the listeners may have heard but I stopped working on Chili Project and RedMine stuff a lot, and so, I'm actually, I'm going to use the buzzword, but I'm basically pivoting a lot of my consulting, and I'm looking to get into normal Ruby on Rails, and maybe even JavaScript programming. So it's a completely new niche for me using the experience I have, but I have to rethink my marketing. And it's almost like starting a new business, and so I have a 2-3 month period where I'm not going to have much in the way for the clients, as I build back up. And I couldn’t do this if I didn’t have this. emergency fund to back me up to pay expenses. I remember when I first got started and didn’t have this. I was taking projects, like I've done Rails I think 3-4 years at that time. I took projects where I was doing PHP or building WordPress sites. I knew PHP, I hated it. I knew Rails a lot better, but I had to take projects, and I had to pay bills. And so I did that until I've built up enough funds, and said, “Okay, I'm not doing PHP anymore. I'm just doing Rails.” So it's that freedom, and the ability to take opportunities is what this has. CHUCK: Absolutely. The other thing is there's so many things that I wanna explore, and so if I need to take some time and really dig in to some of these stuff. For example, one of my clients, he was actually the project manager for a client that I just ended… lets, see, what am I trying to think about here… So there are some internal politics going on there. Anyway, I'm kind of on hiatus with them, and then they are going to decide whether or not they wanna bring back or not, depending on how things go with their internal team. Anyway, he's actually gone out and been talking to some people who wants stuff done, and is working on bringing things my way. But one of the things that one of these people really want is an iPhone app. And I've played with iPhone development, I've written a couple of toy apps that I never put on the iTunes app store, but this was quite a while ago. And I'm not completely current anymore. And anyway, what happened was if I needed to make some time, take a week and get current with it again, then it’d be nice, because I could. I could just say, “I'm totally interested in this job.” And while I'm negotiating it, I could work half time, and spend the rest of my time getting current with this stuff. So, there's a lot of freedom there, and it's not just in the ability to stop work or to walk away from a job, but it's actually, you can take the time to get trained and build skills and go do whatever it is that you want to do. And so it just really appeals to me that way. So, all of those different things, being able to spend a little bit more time on my podcast and not worrying about the fact that I'm taking a little bit more time away from working on projects for clients and things. All of those things are just for me, they just seem like big wins, so. ERIC: Yeah. And once you kind of know like, “This is how much I have in business expenses and personal expenses, and my salary,” and you can kind of figure out like, “My business needs to bring in x amount of dollars a month.” And then depending on how your clients, you can even get to where you hit that amount, if you hit it like on the 16th of the month, you can stop working and take the rest of the month off. I know a local freelancer who, I think he works his ass off ten months out of a year, and then takes a two month trip. And I think this last year, he took a two-month trip to Mexico and just went around Mexico. Went not backpacking, but just driving to different towns and sitting in cafes, chilling, doing what he wants. And when he comes back, he works again for another ten months, and will then take like two-month trip to Europe or something. He's like, that’s how he recharges. And he builds up the cash in order to live those two months. CHUCK: Right, totally. That really appeals to me too because I love to travel. I love to explore some of those things. I really love that idea. You work your tail of, and then you win later. So are there any other aspects of managing finances that we didn’t talk about? I guess one thing that does come up for me, and I'm probably going to talk to my CPA about it, but I'm wondering if you have any insights on this. My wife doesn’t work in my business, but we are going to be taking this trip to Hawaii. I'm going to be speaking at the Aloha Ruby Conference, and this one conference she wanted to come along with me for, imagine that. I'm trying to figure out how I can write off as much of the expenses to bring her along as I can. ERIC: It's taxes, so I'm not an account attorney or any of that stuff, disclaimer. But for the way I understand it is if you're going for a business trip and it's just business, you can write off the trip and everything. If you're going to a trip and it's like half business, half personal, you can write off like 50% of the trip. I don’t think you could write off your wife’s stuff, but say you go and you're going to spend it like 50-50 and you go out to dinner or your wife is there, but also some other people and you talk business stuff, you might be able to claim 50% of that dinner. It's really tricky. I know the IRS is really strict about like travel and writing off mills and entertainment stuff, but you can write off at the very least a lot of your side of it. CHUCK: That’s kind of the plan. I mean, I have a bunch of sky miles, so I'm probably going to book her flight on those, and then have the business pay for my flight and things like that, so that I can get the most expensive parts covered by the business. But yeah, I just wonder if there's any way to do it. I don’t know if I hire her to do certain amounts of work, or have her participate in some way related to the conference if I can get away with it that way. I just don’t know. ERIC: Yeah, it would be hard. I've gone with my wife who doesn’t participate in my business. We've gone to like a coffee shop for dinner, and I've talked business with her, and it's been like hard business like we're trying to plan out this next year, this and that and she's mostly sounding bored, and that type of thing. Those I typically write off  because it's a business lunch or business dinner or whatever, but it's no travel, it's maybe under $100 each time. CHUCK: All right, well, I told my wife I’d be off at three, which means that we have about ten minutes left with the show. And I know this is going to be a little bit shorter, unless you have something else to bring up, we'll get into the picks. ERIC: A couple of things, just to summarize. If you don’t have it, try to build up emergency savings. An easy way, if you don’t wanna spend time thinking about it is put ten or twenty percent of every invoice into a savings account. Say for taxes, if you don’t have an accountant, just take 20% or 30% more and put that into a different savings account. Ask yourself if you really do need it for your business. I mean, some things that might not be huge, but you could get a large productivity win from it. And then really do the same thing in your personal side; make sure you have an emergency fund for your personal life too. And don’t forget about retirement. I mean, you don’t get a 401K, you don’t get employers to match. You have to put all the money into the retirement account yourself . You don’t wanna end up being 65 still having to freelance, still having to deal with clients, still having chase invoices. CHUCK: Exactly. I totally agree. Just the flexibility that you get out of that; the amount of worry you are avoiding. ERIC: Mh-hm. CHUCK: Anyway, let’s get into the picks. Why don’t you go ahead and go first? ERIC: This is a presentation of Merlin Mann. It's from Webstock 2011. The title is Scared Shitless -- How I Mostly Learn to Love Being Afraid at Pretty Much Everything. Pretty emotional talk, actually. It talks about how different stages of his life, how he was afraid of different things, and how that caused him to not taking actions, or taking action and then the results of it. It's a pretty interesting look back at his life. I think a lot of us can look at them, we're all really afraid, especially when we get started with freelancing of like, “What if this happens? What if this happens?” And sometimes, you just kind of just got to take the plunge and try something. So it's a pretty good presentation. I don’t know how long it is, but it's definitely worth watching. CHUCK: My picks, I don’t know if I've brought this up on the show. I think I did several weeks ago. I didn’t get all of the… or I wasn’t paying attention on my car and I didn’t put oil in it, and haven’t oil changed for a while. I blew up the engine. It was pretty bad. It's still kind of ran, it just didn’t run well. But there was no way that I can make it through the canyon that I was driving through when it went kaput. Anyway, my father in law and I went down and we got an engine from the scrap yard or whatever you wanna call it, and we swapped it out. And this Saturday I think, the water pump on the new engine went out. And so, I wound up replacing it. And over the years, having worked with him on various things in the house or on the car  and things like that, I began to accumulate the tools that I need to work on this stuff. And you would not believe how handy some of them are. So I'm just going to bring up a few that I think people, if they wanna kind of get into working on some of these mechanical stuff should probably invest in. The first one is an air compressor, and the air compressors are nice, not just because you can fill up the tires on the car or the bike or whatever, but they are also really handy in that they are used to drive tools; so you can get a nail gun or a socket, an impact wrench. So my pick is an air compressor. In this case, what we use most of the time was an impact wrench. Super handy. The other thing that was really handy to have was hydraulic jack. A decent one cost you like $70 or something, but if you get a couple of those and a couple of jack stands, the you can get your car up where you can actually get under it and work at it that way. And honestly, it's well worth the investment. I mean, one or two oil changes you make your money back just because taking it in somewhere between your time, especially when your time is worth what mine is with at my rate, versus just jacking the thing up and getting under it, emptying the oil out, pulling the filter off, putting the new filter on, filling it back up with oil, I mean, we're talking like ten minutes. But if you take it in, it always takes something like half hour or more and they charge you way more than the stuff it's worth. The other thing is then you can choose what kind of oil you want in it, and make sure you are getting what you want with taking care of your car. So, those are my picks. I've been thinking about how can we make the show more interesting, and you had been too. And you actually said that you might wanna talk just briefly about what's been going on in your business. I know we talked a lot about that just today in the normal discussion, but I really like the idea. So is there anything going on in your business you wanna talk about? ERIC: I'm trying to find a new niche to work in. And so, this entire week, I've been writing blog posts or scripts to do screencasts. And so like I've been doing probably 3-4 hours of marketing a day, which if you’ve ever done a lot of marketing, you can get killed. It's so labor-intensive, so much thinking, especially if most of the stuff you do is dev. And so I have a lot of that stuff, and I'm actually playing with new ideas. And so probably on my blog, I’d be having a lot of that stuff come out. I take my time when I edit, so there's posts that might take 2-3 weeks before they actually see the light of day, but that’s what I've been doing. I mean, my fingers are sore from typing. CHUCK: How do you decide what you are going to switch niches into? For example, I got tired on Ruby on Rails. I'm not, but let’s say that I did. How do you make that transition? How do you decide what you are going to pivot to? ERIC: Honestly, I don’t know yet. I still like Ruby Rails and I love Ruby in general, but JavaScript has always interested me a lot. When I first was looking at it, it was still not that the language was immature, this was before jQuery., like prototype just came out, and so there's still a lot of work you had to do to make things work. When a lot of that is done for you, there's a lot of great libraries out there, so I'm considering JavaScript. And I'm also looking at a lot of the single page app style Gmail where it's like one page, you got all the JavaScript doing a lot of your logic and you just have the backend server just with an API. So I'm taking a look at some of that stuff. But the hard thing is I'm trying to avoid like figuring out like this is the solution I provide and then looking for a problem. I'm still trying to figure out like, “Okay, what do my potential customers actually want and need? Do they need this or is just a standard type of site they need?” So that’s why I said like I've been doing a lot of marketing, a lot of research of like what are businesses wanting right now from web design and development? CHUCK: Cool. Well you'll have to keep us posted on how that’s going. I think the big news was anything that I covered today was just me fighting the issues with the payment. So I don’t know that there's much more to share. So we'll go ahead and wrap the show up, and thanks for coming. We'll be on again next week!

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