And the answer is… (Drum roll please…) How much money can you make?
What?!?!?! Really? Oh you money hungry, greedy capitalist pig. Yep, that’s me. “But I really want to do this.” “It’s my passion.” “It will make me so happy.” Blah, blah, blah. We’re all so caught up in this “do what you love” crap that we never stop and ask if it’s really a good idea.
So, why is this the most important question? Simple, how much you can make dictates (or should anyway) how much you can invest to get (whatever) off the ground and running.
R.O.I. – Return on Investment
For wise investors, this is second nature. They call it ROI, return on investment. When it comes to choosing a career or starting that dream business though, emotions get in the way and this step is thrown out the window. In the case of a college degree, it’s almost sacrilegious to question whether a degree is worth the money paid. Maybe if we actually thought about it for a minute we wouldn’t have millions of degreed restaurant personnel with $60,000 of debt.
Now that you’re all worked up, let’s calm down for a second. I’m not questioning whether a degree in 18th century french poetry is legitimate, I’m merely proposing that one shouldn’t borrow $60,000 to get one. If you have $60k stuffed into your mattress, then by all means “poet” till your heart is content. Just don’t borrow it and then complain 6 years later that your burden is too much to bear.
Do some simple math. Google “loan calculator” and you’ll find a myriad of sites to help you. A $50,000 loan paid over 10 years will set you back around $500/month. That’s no small chunk of change for a fresh graduate to handle. What’s the typical starting salary for the career you’re working toward? Simple math again. What monthly payment can that salary support? If it’s less than the burden you’ll incur by borrowing that amount then it’s time to look for other ways to supplement your investment.
What about my passion? I’ve always dreamed about making ornate pencils for first grade kids. Awesome! Nothing better than following your dreams. The only issue I see here is there’s a better than average chance your passion may just be a hobby and not really a business that can put food on the table. Again, do some simple math. Say it takes you one-hour to make that amazing pencil and you sell them for $10 each. Well, that comes to about $10/hour of revenue. Even at 100% profit that makes for a tight living and certainly no room for you to spend $25,000 on that custom pencil engraving machine.
These examples may be a bit on the fringe but the logic applies to any endeavor that will eventually be expected to support your lifestyle. When that rent bill is staring you in the face, all of a sudden money really does become important.
Mastering delayed gratification will go a long way for you in life.
“Give me some help here Ed!” Ok, I love a person with passion. I really do want you to be able to follow your dreams. It’s why I bring all this up in the first place. I’ve seen (and experienced myself) all the excitement of a new venture that ends up being flushed down the toilet of busted dreams. It’s why I want you to put this thought in beforehand so you can greatly increase the chances you will be able to follow through.
What can you do if the analysis determines that your new venture will not support the debt you need to start? Quite simply, you need to supplement without debt. One very simple way is to postpone your dream a bit. Train yourself in a little delayed gratification. For instance, I postponed going to college and worked full-time for a year in construction after I graduated high school in order to save money for college. Did it suck watching all my friends go off to school and leave me behind? Yep! Do I regret doing it? Nope! Once I went off to school, I enrolled in a co-op program where I alternated working quarters with school quarters. It stretched out my graduation date but supplied me with more earnings toward school as well as valuable experience once I earned my degree.
If you’re starting a new business. Do you really need that high end office furniture? Latest computer? Fancy clothes? So many people will spend money on items that don’t contribute to the bottom line or to customer satisfaction. Think longevity. Most business plans blow up in the first 3 months. It always takes more time and more money than originally planned to get things rolling. Don’t starve a business that could have been successful if you only had 3 more months of money to carry you through. When you create your business plan, add 50% to the cost of starting up and 50% more time until you reach your sales goals. What does that do to the picture? Better to reduce cost up front and have it leftover for later than to run short just before you’re ready to take off.
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