We’ve been off on a whirlwind trip with our 5-year-old visiting extended family for the holidays. It was at my sister’s home in Burlington, VT last week that I let slip we’ve finally started drawing a salary from our business. My brother-in-law was seriously impressed. “That’s Big Time,” he said, “when you can finally do that!” He knows several people with side businesses that never take a dime from them. Everything they make goes right back in and it seems to never end. To get to the point where you can actually pay yourself, “Wow,” he said with a look of pure admiration, “you must be doing really well.”
I caught my breath. I was glad my husband was elsewhere in the house. He wasn’t crazy about my plan for cutting us a salary, especially the rather large one I decided to pay us. Since 2008 we’ve only taken money out of the business to cover a shortfall in our monthly bills - $400 one month, $800 the next, maybe $2000 if we had a large expense. And that was fine when I was working for Entercom and pulling in a steady salary with quarterly ratings bonuses. But then I got laid off, and took a less demanding job so I’d have more time to work on the business. I could supplement the lower salary of my new job with freelance work, and I did for awhile. But then I had to make a choice of where I would spend my time – working for someone else, or building my own business. Meanwhile, my husband was (and still is) working full-time at the business. Before I started cutting him a salary from the business, his income was effectively zero. Our monthly draws from the business to balance our personal budget were getting larger. Sometimes I would let a personal credit card balance roll over into the next month to avoid taking such a large draw. Then I did it again. And again. Then one month I logged on the computer and that balance scared the piss out of me. I had to do something.
Pay Yourself First – Or Else!
I had come across some business advice from a rather unlikely source – Debtors Anonymous. I’m not sure how I stumbled upon their blog, Plenty of Time, Money & Love (www.plentyoftml.com) but it’s awesome. Very inspiring. I’m not sure I fall into the category of Compulsive Debtor – I use credit as a tool to build my business, not as a crutch to pay for a lifestyle I can’t afford. But their blog has some very practical ideas I have been able to use. For instance – creating a sane spending plan (not a budget, that’s a dirty word!) that covers all my family’s needs and a few of our wants with the income we have. Of course, we actually had to have an income. The one income from my “day job” wasn’t going to cut it. We’d need to draw a salary from the business to make our family living expense budget work.
Further reading of Plenty of Time, Money and Love revealed a subset of Debtors Anonymous called Business Debtors Anonymous – a group for compulsive debtors who are also business owners. I may not consider myself a compulsive debtor, but I had a few of the warning signs of a compulsive business debtor – and one of those signs was not paying yourself a salary. Their theory is, if you do that, you are living in a state of deprivation for the sake of your business. Another way of living in a state of deprivation is not allowing yourself any time off. I look back on 2015, The Year Without A Vacation – where I used all three of my paid vacation weeks from my “day job” to work full-time at the business trying to solve one crisis or another. Deprivation is bad, says Business Debtors Anonymous. Deprivation leads to debt.
It makes sense when you step back and think about it. If you work with your nose to the grindstone 365 days a year with no time off, how many good ideas do you think you’ll come up with to take your business to the next level? How inspired will you be? Not very, in my experience. That’s just a recipe for burn-out.
And then there’s the matter of salary. If we don’t cut ourselves a salary, we are in effect hoarding our pennies. There are universal laws around money that are very metaphysical – money is energy and it must circulate. Hoarding pennies keeps your mindset small and keeps you in constant Survival Mode.
Aside from the metaphysics, there’s concrete reality I discovered about taking a salary from the business. It costs so much for my family to live. The income from my one job does not meet that need. So if the business doesn’t pay us a salary, here are our options: We drastically downgrade our lifestyle, which may not even be possible, as we are living comfortably but not extravagantly. There isn’t a whole lot we could cut without affecting our ability to run the business – we need both cars, the cell phones and data plan and the high-speed internet, and the after-school childcare for Savannah. Other options: Steve will have to get a job. Or I will have to get a better job. Or I will have to take on more freelance work. All three of these solutions mean we spend less time on the business, and that defeats the purpose. Or: we go into personal credit card debt. That was happening by default.
So in October of this year, I took a leap of faith. Faith that caused me to believe in something that common sense was telling me not to. Faith that if I paid us both well for the work we were doing for our business, I would free up the circulation of money-energy, and it would increase. It would free us from the mindset of deprivation, and add importance to the work hours we were putting in. After all, how could I turn down free-lance work to put in hours on my business when I wasn’t getting compensated? I pay myself around $26 per hour now. My freelance work pays about $14. Now it’s an easy choice!
Money is the New Sex
$26/hour. Between Steve working full-time and me working part-time, we draw a salary of $6,000 per month from the business. Half of my friends are gasping in horror – how could they possibly need that much??? The other half of my friends are… gasping in horror – how could they possibly live on so little??? I’m at a very interesting phase of my life where I have friends from all over the economic spectrum.
Nobody talks about money. It’s taboo. I’m talking about it here. It’s my blog, and I get to make that call! I think money is to the 21st century what sex was to the 20th – it’s something we need to get used to talking about so we can get our facts straight. More people are being hurt than helped by keeping this kind of talk under wraps.
Don’t Be Cheap, Boss
$26 an hour is more money than I’ve ever earned in my life, and there’s a reason I picked that number. I consider myself to be a chronic underearner. I grew up poor, and my parents were not role models for me in the salary department. I chose to go into a field that notoriously underpaid its workers – radio broadcasting and music programming is one of those glamor jobs people are lined up around the block to do for free. The fact that I even made a full-time living at it put me in a privileged minority within the field! I was lucky enough, once, to land a part-time job on the air in Boston, a major market. The union wage I was paid was $25.26/hour. That was the highest hourly wage I ever made. But now I pay myself more. I can raise my mindset about who I am – a well-compensated business executive now.
Work Your Capital!
So how can the business afford this extravagant payroll? The answer is working capital. We were able to obtain small business lines of credit – because of our careful cash management, prudent business decisions and payment history over the past eight years. One of the expenses working capital is used for - the world over - is payroll. Yes, it is debt. It will need to be repaid. And it is finite – if we use it all up before we make our breakthrough to success, game over. But I’m not going to let that happen!
2016 is a new year. New challenges, new opportunities. New, higher stakes now. Our business has to earn enough income to not just cover our expenses, but our payroll, too! Our current stable of rentals isn’t going to cut it, especially now that we’re paying a property manager. On top of that, I’d like to be able to pay our property manager quarterly bonuses out of profits!
So we need to increase our income somehow. Add more rentals? Possibly, but those come with expenses, too, so we have to tread carefully there. Flipping houses and supplying the rent-to-own market are other sources of real estate business income that come with initial expenses. Wholesaling seems to be an easy answer – hooking up motivated sellers with interested investor-buyers for a consultation fee. There’s also private money lending, which is something we haven’t tried ourselves yet but we know people who have. And then there’s good, old-fashioned real estate sales commissions. Steve took the class, passed the test and got his real estate sales license. There’s a broker in Clarks Summit interested in working with him because of his experience with investors.
This blog is about DIY real estate investing. Motivation & Inspiration tempered with reality. Ginger Snapped will be moving in this direction in 2016. I started writing this blog in reaction to Wilkes-Barre’s ridiculous One Strike law – that’s what “Activist” means in the heading of this blog on Weebly. I’ll probably change up that heading this year. I’m not sure my activism has ended, but as I began preparing to go to war with Wilkes-Barre I realized I really had to shore up my own business, make it Titanium, because such activism does make enemies! That’s where I’ve been putting my energy, and while I’ve been doing that there’s been a shift in the Wilkes-Barre city government. A new mayor was elected, one who despises the old one. A younger, more vibrant city council is being seated. There may be more work to do in the arena of property rights activism, but my focus has shifted. It remains to be seen whether our business will even remain in Wilkes-Barre, or if we will base elsewhere – another consequence of our run-in with One Strike. Whatever happens, it will be an interesting journey. I thank you for taking it with me every Sunday. Please, if you like what you’re reading, share this blog.