Money Blue Book

As I may have mentioned before, I’m a recovering attorney - and a fairly young one at that (I’m in my late 20’s). Right now I’m in the process of working at home on my online blog and business ventures for a few months before returning back to my full time work as a contract attorney.

So how did I end up doing this type of work instead of using my law degree to pursue a so-called real legal career? Sometimes I ponder about what my dream job might have been had I not gone to law school, since it wasn’t my passion in life to begin with. My decision to attend graduate school was more due to process of elimination. I started out college on the pre-med track to become a doctor, did well in my studies, got bored with chemistry and biology, and eventually shifted gears into computer science. I loved taking programming theory and practice courses and did very well, but after a few semesters, I decided that I couldn’t see myself stuck as a computer programming nerd - so I moved on (how ironic, now that I’ve come full circle again). So then I decided to go the business route and major in finance. After a few more semesters during which I did pretty well, I pondered what else was out there. However, by then I had enough college credits to graduate and my parents were beginning to wave the tuition baton, “encouraging” me to move onto bigger and better things. After looking around, I decided I wasn’t ready to financially support myself just yet. So I took the LSAT exam and sent in my application to a few top tier law schools. Before I knew it, I was attending the state law school and working my way through civil procedure, contracts, and criminal law classes.

Going The Law School Route - But Still Not Sure Where I Wanted To Go Professionally

One thing that I noticed during law school was how incredibly math-adverse law students are. I suppose that’s why they all chose to attend law school to begin with - to avoid having to deal with mathematics or anything related to numbers. However, it just so happened most of my law school friends were of the opposite persuasion - they were mostly into tax law, a legal field riddled with numbers and statistics. I wasn’t particularly fond of all the math involved, but I went with the herd and ended up taking most of the tax law courses available - everything from individual tax planning and corporate tax, to the most difficult law school course I ever took - partnership tax.

After law school I worked for a trial judge and later when on to work for the federal government as an associate attorney for a year or two. After another very short stint working for a crazy female cougar attorney (I’ll share that story one day, as it was a very eye opening experience, but for all the wrong reasons), I ended up choosing to work for myself. After starting up a few profitable blogs such as the personal finance blog you are reading right now and another law related one, I now work as a contract attorney on the side when I’m not working from home. I receive most of my contract attorney assignments from staffing agencies that place me on legal projects that last anywhere from a few weeks to several months. The job description usually entails very simple duties such as legal document review and mindless legal tag coding. Many dread performing contract lawyer work, but the work provides very lucrative pay without the heavy responsibilities (I often refer to it as my “stripper pay”). It’s perfect for my lifestyle at the moment since I don’t want my full time job to hinder the time and effort I devote to my personal small business operations.

The great thing about contract attorney work is that it is extremely stress-free and unlike a traditional lawyer job, my responsibilities and duties end at the end of the day. I never have to run into the office after work or cut a weekend short to file a legal brief or prepare a memo. However there are long term drawbacks to this line of short term work. The biggest downside is that the work is only temporary and isn’t career track oriented. With temping, while meals and transportation are frequently reimbursed, you usually don’t receive any health benefits or job security. But then again, in this day and age as well as economy, do any of us truly have solid job security anymore, or even guaranteed health benefits? The other downside with legal temping is the lack of professional development. However, I simply cannot see myself pursuing the traditional attorney path anyway. Lawyers notoriously burn out fast and work tremendous hours that ultimately take a terrible toll on their health, family wellbeing, and lifespan. Plus, legal employment prospects for attorneys isn’t what it used to be as the market has become extremely saturated. Almost anyone with half a functioning brain can go to law school these days as there are no significant barriers to entry or pre-requisites that need to be overcome to apply. Especially in a major city like Washington DC, you can’t walk in any direction without bumping into a lawyer. It’s utter and complete saturation.

Looking To the Future - Sacrificing Some Income Now To Build Up My Online Blog Businesses and Incubate My Other Real World Ventures

Thus, I’ve come to realize that the key to building wealth and reaching financial prosperity is to build up multiple streams of alternative and passive income, apart from your primary full time employment. Otherwise, you simply run the risk of living your entire life trading hours for dollars. Passive income generation through methods such as blog income or stock market investing help to get around the finite time problem by allowing you to generate income even when you are not actively sitting and working at your office desk.

However, I don’t regret going to law school at all. I was prudent to have attended a state school with relatively lower in-state tuition, and I was very fortunate to have been able to consolidate my student loans at a very low fixed interest rate. My college loans are all paid up and my graduate school loan payments are thankfully quite manageable. Other than tuition issues, law school prepared me for the future by teaching me how to more aggressively and confidently combat conflicts in the legal and business world. Overall my finance, tax, and legal background has helped me to better improve my personal finance blogging tasks, as well as enhance my non traditional legal pursuits. I knew after law school that I didn’t want to pursue the traditional law firm job path since I had a passion for entrepreneurship and running my own business. When I discovered blogging and developed the ability to tap into the limitless potential of online business income, I knew I had found my calling. It’s a key component part of my solution to end the 9-5 workweek cycle, and the reason why I’m currently sitting at home right now tinkering on the computer instead of collecting a steady paycheck at a stressful full time lawyer position or even at a contract attorney gig.

For now, I plan to only take a short time off to work on my ventures full time as I currently am not yet able to live off of my online income alone. Perhaps that day will someday come, but for now, I plan to return to my legal contracting job after a month or two off. Obviously I don’t see contract attorney work as the future for me since the profession is inherently unstable, unpredictable, and projects do tend to dry up during recessions and slow economic periods. I merely see it as a necessary means to an end for now. Meanwhile, I also realize that by taking a few months off I am forfeiting a substantial amount of contract attorney pay to spend time building my passive income businesses, but I think in the long run and even in a few years from now, the short term financial sacrifice will pay off. The amount of money I am losing by not working full time is quite substantial however. Contract attorneys in my area get top wage rates of $35 an hour with time and a half of $52.50 per overtime hour worked past 40 hours. My contract projects usually require that I bill around 50 or so hours, which comes to a weekly income of $1925.00. I’ve worked at least one extremely time demanding project before in the recent past, during which I worked and billed 96 hours a week for a span of one month. The work was a simple breeze, but the hours were brutal. Of course during that time, I earned $4,340.00 per week before tax. I guess it speaks highly of how much potential I see in online and passive income businesses that I would forsake that wage income now.

Comparing financial networth can be tricky since you aren’t always comparing apples to apples and oranges to oranges. Married individuals that combine the incomes and assets of both spouses will clearly have much higher networths and much lower expenses than single individuals.

With that in mind, here is some background information to help you know where I stand. I am currently in my late 20’s, not married, currently renting, and working a contract job that pays reasonably well. I graduated from law school a few years ago and am still trying to figure out exactly what is it that I want to do professionally. I took things easy after graduate school, choosing to enjoy life and neglected the importance of saving early. I did not start tracking my finances and focus on saving until the start of 2007 last year. All of my savings and investments were initiated one year ago on January 2007. Here is the summary of my 2007 financial progression and where I stand now.

Tracking My Financial Progress Using Networth IQ

Investment and Retirement

The bulk of my investments are in emerging market mutual funds, including the Fidelity South East Asia Fund (FSEAX), and in a few speculative stock positions, including Superconductor Technologies (scon). I know my investment approach is extremely aggressive, but I don’t mind taking on tremendous risk as I am investing for the long duration (25+ years). Despite the recent downturn in the stock market, my investment portfolio still gained 25%, primarily due to my fortunate timing earlier in the year as well as the continued growth of my target markets.

In early 2007 I opened and made my first Roth IRA contribution for 2006. I have yet to contribute for 2007 and 2008 but will certainly do so by the April 15 deadline. Although I am currently performing contract work, I do also get a small matching 401k plan through my employer. However, I didn’t fully take advantage of this in 2007. In 2008 I hope to contribute enough to get the maximum match.

Spending, Credit Cards, and Balance Transfer Arbitrage

Currently, I use a combination of reward credit cards to pay for everything - using a different credit card for different types of purchases to get the maximum reward benefit possible. I rarely lug around cash, although I do keep about $100 cash on my person for emergency use. In 2007, I racked up the equivalent of nearly $850 worth of credit card rewards and cash back that I have yet to redeem. Most are in the form of Citi Thank You Points that I will be converting to a credit balance soon. As for credit card debt, I have none because I always pay off my balances in full every month.

In 2008, despite lower yielding bank interest rates, I still plan on starting the 0% balance transfer credit card process, also known as the App-O-Rama. Despite it’s silly name, for those who are responsible with credit card usage and have good financial sense, it’s a good way to earn extra interest income by depositing the balance transfer amount into high yield savings account. I pulled my most recent credit report and checked my FICO credit score - it’s a very healthy 745 so I’m good to go.

Checking and Savings

My most actively used checking account is an E-Z Checking Account handled by Citibank that earns no interest. I keep the deposited balance very low as a result. Excess funds not needed immediately are transfered into an attached E-Savings Citibank account. Currently the yield is only 3.75% APY. In 2008 I have plan to chase better savings interest rates through online banks like E-trade Bank and Washington Mutual.

I also have plans to migrate my primary checking account into one that offers a reasonable interest rate without requiring too high of a minimum balance. Is there such a thing? I also plan on opening a business checking account for my side business one of these days. Currently, I can’t open a business account using my fictitious business name until my trade name application has been process - but it’s taking longer than expected.

Expenses

Most of my regular expenses is made up of my apartment rent and food. My rent is currently $1,425 for a one bedroom condo, an expense I gladly pay since it gets me away from the roach infested dump I used to live at (I’ll write more about my past scary housing experiences sometime). My commute to work is by Metro subway trains, so I don’t pay much in the way of gasoline and other transportation costs. Looking at my monthly expenditures, I notice that I eat out way too often. Luckily I use restaurant reward credit cards and basic frugality sense to lower costs. Being a bad cook and trying not to eat out so often is difficult. My solution is to make sure that I marry a girl one day who is an exceptional cook and loves to cook for her man. Hehe

Real Estate and Housing

I do not currently own a home, nor do I have any plans in the near future to subject myself to the mercy of the collapsing housing market. I am hoping that housing prices continue their plunge for several more years and shed at least 25% of their value before I will seriously consider buying. I am perfectly happy renting an apartment in the meantime and anticipate continued Fed rate cuts. I guess I am looking to time my entrance with bottomed-out housing prices and low interest rates.

The majority of the networth of many people out there is due to the home equity they have in their homes. As I am not currently a homeowner, I do not have home equity to list as my asset. However, what I do have is flexibility in where I invest as I am not stuck with an unfavorable long term mortgage commitment.

Student Loans

My students loans are the primary drags on my overall networth, however they don’t hinder me financially at all. For someone who graduated from law school not too long ago, my $30,000 worth of student loans are very tame compared to the more than $100,000 that many law students frequently graduate with.

Fortunately, I was able to consolidate my student loans at a very low fixed interest rate in 2004. I was also able to take advantage of all Sallie Mae borrower benefits to further reduce my interest rate to a very low fixed 2.25%. My monthly payments are only $199, a piece of cake in the grand scheme of things. Because my student loan interest rate is so low, I have little incentive to pay it back quickly, and prefer to leave the amount in high yield savings to earn interest income.

Side Business

In my personal quest to one day stop trading hours for dollars, other than working my full time day job I also run a few other side ventures as well. They are growing but I plan to spend more time on them in the new year. I hope I can devote the needed time to keep them growing as they are quite time consuming - sometimes it feels like I’m working a second or even third job. But I am excited for the new year and hope 2008 will bring forth bigger and better things for everyone. I know it!

If you run a small home business on the side like I do, it’s not always easy to project a professional image without breaking the bank. If your business is new, it’s unlikely you have the financial means or even the budget to afford a commercial office space, a secretary, a furnished meeting room, or any of the usual business amenities. However, depending on your budget and needs, there are affordable options out there.

Rent A Shared Office For Meeting Room Or Virtual Office Needs

More established small businesses might be able to look into renting a shared or serviced office space through a workplace solution company like Regus. These business office rental locations are usually fully furnished with desks, meeting rooms, functional kitchens, and business amenities like secretarial service and a professional front desk to handle clients, mail delivery, and customized call answering. They provide a professional working environment without the long term commitment. I would know - I’m currently working a contract project at such a location.

Rental offices are a good alternative for small but growing businesses looking to expand but don’t want to deal with the hassle of property ownership or long term commercial leases. However, many small business owners run things from their own homes. For them, there are virtual office solutions available:

1) Telephone Service

Sharing business phone calls with your personal home line isn’t a good idea, especially if you get a lot of incoming business calls. Dialing out is fine, but for incoming business calls how does one line handle voicemail greetings for both personal and business calls? You can always get another landline or cellphone number, but that can get awfully expensive, especially if it is underused.

Since I don’t have a separate landline at home, I currently use my cell phone plan in conjunction with eBay’s GrandCentral free phone service to re-route business phone calls to my personal cell phone number. The service provides customers a free separate number that can be given out as a business line, and have calls automatically forwarded to your personal line.

Since exceeding monthly cell phone plan minutes may be a problem, another solution is to sign up for an established Voice Over IP (VoIP) phone service like Skype. For $3 a month, along with an extra charge for a personal SkypeIn phone number to handle business calls, you can receive unlimited incoming calls from a cell or a landline. SkypeIn calls are handled through the online Skype interface and calls can be picked up anywhere you have internet access.

2) Fax Service

Although it’s ancient technology, it is still widely used, surprisingly. If you fax frequently, I’d recommend just going ahead and buying a cheap fax machine. But if you only need to receive faxes on occasion and rarely send them, you can try going with eFax Free, which will give you a free non-local fax number to accept incoming faxes through e-mail.

If you want to send faxes for free and don’t mind having cover page ads automatically attached to your outgoing fax messages, then you can always go with FaxZero. However, you will only be allowed to fax 2 document sets per day, with a maximum of 3 pages each.

3) Mailboxes That Offer A Professional Mailing Address

Personally I use my home as my business address, but if you want some privacy or if you expect to receive a lot of packages, you may want to get a larger standalone postal box. The U.S. Postal Service and most major private postal carriers like UPS and Fedex offer free pickup and the option to conveniently pay and print your postal stamp labels at home.

You can get a separate standalone P.O. Box through the U.S. Postal Service, but your mailing address will contain the “PO BOX” tag followed by your personal box number. If you want to get a more professional sounding mailing address that contains an actual street address, you may want to go with a private mailbox at a place like the UPS Store. Prices vary but private UPS box prices are usually about $200 a year (compared to less than $100 for a standard PO Box). However, unlike a standard PO Box, a private mailbox through UPS is 24 hour accessible.

4) Business E-Mail Addresses

Free e-mail addresses are simple to find - just check out Yahoo, Hotmail, or Gmail. However, if you want to sound professional and want to be taken seriously, you probably will need to get an e-mail address that contains your business name. There are plenty of email hosting options out there depending on your needs. For example, with DreamHost, you can get unlimited e-mail addresses and email forwarding for a pretty good $5.95 a month.

The end of the year is here, but don’t just take it easy and forget about important end of the year financial moves you may need to make. For those who have one through their employer, make sure you’ve fully maxed out your Flexible Spending Account (FSA). For the remaining unused funds, my usual end of the year routine is to get creative and spend the rest on qualified health care items like Tylenol, Advil, and over the counter cough medication like Delsym and Robitussin. Covered FSA medical expenses also include items like contact lens solution and eye care drops. If you have no immediate health needs, it’s always a good idea to stock up on emergency, medical kit type supplies like Band-Aids, gauze, and Betadine for common scratches and scrapes, particularly if you have kids.

What Is A Flexible Spending Account And How Does It Work?

Flexible Spending Accounts are tax advantaged arrangements set up by some employers to allow employees to set aside a pretax portion of their regular paycheck to pay for qualified expenses, usually for medical care, but frequently also for child care costs. The smart use of pre-tax savings through FSA’s can help you save up to 30% of the cost of out-of-pocket medical related expenditures. Most people contribute about $1,000 towards their FSA, but it varies depending on individual need.

Benefits of the Flexible Spending Account Include:

1. Contributions towards your FSA are pre-tax.
2. When you provide receipts to get reimbursed, the FSA reimbursements are tax free.
3. Convenient FSA debit cards are now frequently being used to make it easier for employees to use the funds in their FSA.
4. Medical FSA’s are pre-funded by the employer - when you set aside an amount for the year, the entire amount is available for use immediately at the beginning of the year, even though your periodic contributions will actually be made later.
5. FSA’s are well, flexible - they can be used to pay for a wide array of health care related expenses including dental, vision, over the counter drugs like painkillers and allergy medicine, and even elective medical procedures like Lasik laser vision correction surgery. FSA’s also cover health care related costs like insurance co-pays, deductibles, and other related out-of-pocket expenses.

The FSA “Use It Or Lose It” Rule - Two Way Street Between Employer and Employee

It’s important to properly and accurately estimate how much you are likely to need in your FSA for the plan’s coverage year. The biggest drawback of the FSA is that it is a use it or lose it account. If by the start of the new year there is still money left on your previous year’s FSA not spent, the amount is forfeited back to the employer, where it is used to cover administrative costs. Don’t let this happen because you’re just giving away your own money back to the employer!

However, this use it or lose it policy also works in reverse as well. As I mentioned earlier, one benefit of the FSA is that the entire allotted amount is available immediately at the start of the year. If you leave your job before the end of the FSA coverage plan year and have already used up the entire year’s amount, you do not need to refund or return the amount back to the employer. Some employers may attempt to recoup the loss by informally asking you reimburse them for the amount since you’re leaving the employment, however officially, employers are not permitted to see seek repayment of FSA monies so long as the original distribution was properly substantiated.