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Avoiding the Pitfalls of Extra
Income Opportunities
Abridged Transcript of an Audiotape
Talk
by
Gavin Hoole
Founder of FREEtime Second Income
Consultants
(Optional PDF version of this Web page)
Welcome to this first tape in a series of talks about creating wealth. If you're serious about improving your economic well-being and enhancing your quality of life, these tapes will be of great help to you. Let me introduce myself so you know who it is who’s sharing this information with you.
This is an informative talk on how to avoid the many dangers and pitfalls that exist in many of the extra income plans available in South Africa today, including those being offered on the internet. So, in this tape I'm not going to try to sell you on anything. I'm simply going to give you useful information. You can then decide for yourself on an informed basis what direction you want to take in order to fulfill your desires and reach your goals.
I read in the June 2000 edition of the Money Standard magazine published by Standard Bank that casinos in Gauteng gross a weekly income averaging R34 million rands. That's R34 million rands that ordinary citizens are paying out of their pockets every week in the hope that they'll make a windfall and hit the jackpot!. The seven Bingo institutions in Gauteng have a weekly turnover of R640 thousand rands. And that's just in Gauteng! The horse-racing turnover in bids is roughly R25.5 million per week. Then there's the national Lotto, which takes in around R50 million rands a week. Add to that the other casinos around the country and the new ones in Cape Town, Port Elizabeth and elsewhere, and you can see there's a huge desire amongst people everywhere to improve their financial situation. And millions of people every week are taking a personal gamble, sometimes a very big gamble, just to get their hands on more money. And they're doing it knowing they've hardly got a chance in hell of succeeding.
One thing's for sure. There's an enormous market for extra income opportunities. And when there's a huge market, there are also lots of operators trying to get a slice of that market — a share of the millions of rands people are prepared to fork out to improve their financial situation. And not all of those operators offer value for money. In fact many are simply offering scams, or at best they're selling just "hope". But they package their so-called outstanding opportunities in such a slick way that even educated people get taken in and expose themselves to an almost certainty of losing their money. So it's a market with lots of pitfalls and potholes. One needs to be very wise and cautious when looking for a way to improve one's financial status in life.
In the current climate of retrenchments and restructuring of organizations, the security of incomes and even pensions has become somewhat threatened. What everyone believed was “secure” in the past has become insecure. The older philosophy that staying in one job for a long time would provide security simply does not hold true anymore. Even a State pension is no longer guaranteed.
I heard on the radio a while back that SA Transport Services had a pension fund that is some millions of rands in the red. This is the fund that is supposed to provide the monthly pension incomes that people have worked a lifetime to create. That's not the first fund to go that way. Many people in South Africa have lost all their personal retirement funds through fund mismanagement, or fraud. That means they won't even have a pension when they stop working. That's a very sobering thought! So, the sad truth is, one's income is not as secure as it used to be in the past.
People are looking in all directions to get relief from their financial stresses, and to move beyond that to realise some of their life-dreams by somehow getting a big cash injection that will take them to a new standard of living. Everyone, well virtually everyone, would like more money, and many would like lots more money.
Against this scenario, it's obviously time for each one of us to create our own financial security. We need to look at creating a regular second income, not just gambling on getting a lucky windfall through a casino, horse racing, the Lotto, or some dubious get-rich-quick scheme or pyramid so-called investment scheme like that Miracle 2000 thing.
Many people have already lost a lot of money trying to create a second income for themselves. There've been numerous investment schemes that went bang, where people have lost their life's savings.
The simple truth is: there's just no such thing as a get-rich-quick method that survives long enough for everyone involved to continue earning. The instant riches dream is just that — a dream. So strike it off your agenda right now. It's as mythical as the unicorn, no matter what anyone tells you to the contrary. If you want to play the Lotto, by all means do so. You might well make it lucky. But know it's a gamble, and your chances are one in millions of hitting the jackpot. Use your pocket money for the Lotto, but put some real energy into creating true wealth, secure wealth, and do it in a way that you have some real assurance of succeeding. That's what these tapes will help you achieve.
So this tape is about understanding the various ways of creating a second income and knowing what to look out for in order to avoid the pitfalls. It's about how to find the right kind of income method and vehicle that can in fact deliver the results you'd want for yourself.
John, a salaried employee, has 3 weeks annual leave each year. He goes to work each day, and at the end of the month he receives a salary cheque. Once he's used up all his annual leave, if he doesn’t work for a month or two, then obviously he can't expect to receive a salary cheque for those months. He must take unpaid leave.
John could be any ordinary salaried employee — a clerk, a
supervisor, or a director of companies. He could even be a
professional person, like a doctor, a lawyer or an accountant — someone
whose income comes from consultations with patients or clients.
Virtually everyone earns what we call renewable income — that is, income
that must be renewed by continuously renewed work activity. The principle
of renewable income is simply this: work this month to get paid this
month. You could also call it now money, or short-term
income.
There's nothing intrinsically wrong with renewable income. We all
need it. But for most of us a renewable income on its own
is simply not enough to bring financial security. It's insecure and vulnerable to
outside influences beyond our control. So what we also need
is what is called residual income. It's a different type of income.
We all know about residual income, but we don't always consciously think about. It's
now time to start thinking about it. better still, it's time to start
doing something about it. I'll clarify.
Residual income is income we work for
now, and next month, and maybe next year, and that keeps coming long after
we've stopped working actively. It's like a pension you can create
decades before you retire. Examples would be a lifetime commission;
or royalties; interest on large investments; rentals on property you own,
and so on. A pension is also residual income, even though it takes a
lifetime and a lot of your own savings to build up a big enough pension
you can live off when you reach retirement age. But we're looking at
residual income that you can start receiving within a couple of years, not
only once you've turned 60 or 65.
Why do we say
that residual income is so important?
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Firstly, it's income that will improve your standard of living and quality of life in the short to medium term by giving you an extra boost to your regular monthly cash flow, like if you were to get a permanent jump in your salary grade.
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Secondly, when residual income gets large enough, like more than what you're earning now, it can actually replace your present income altogether. When you're in that kind of situation — and many people are already there — you can get off the treadmill of daily employment. You can stop having to wake up with an alarm each morning to go to work. So residual income is the kind of income that can truly change the quality of one's life. It's a must-have kind of income we should all be striving for.
So, whenever you're looking for extra income, always make sure the venture you're considering has a significant residual income component to it. I gave some examples of residual income, and mentioned things like royalties, interest on large investments, and rentals on properties.
But how can the average person get to earn residual income
through those means?
To earn significant
royalties you need to have some major talent, like Paul McCartney, or like inventors
who create new things on which they can earn royalties. Or you need
to keep writing some best-selling books.
To earn meaningful interest income, you need to have a large amount of capital in the first place, so that you can invest it in property, or in unit trusts or shares. For example, to earn just R2,000 a month interest income, you need about R240,000 invested at around 10% interest per annum. And to earn R8,500 a month in interest, you'll need an investment of over a million rands. The average person simply doesn't have that kind of money to invest for income. If they do, they probably want to use the interest to add to the capital as a hedge against inflation, so that the money retains its value, rather than live off the interest and have their capital depreciate year after year.
In the past residual income was not easy for the ordinary person to create, yet it is very important for financial freedom. The good news is that the trends of the 20th century have brought lots of opportunities for ordinary people to create a residual income for themselves, without needing a lot of money to achieve it.
So if you have some time, some energy and some persistence, you can earn that kind of residual income pretty easily without any capital investment at all. There are vehicles today — systems, programmes — that enable ordinary people to become millionaires without any special talents or skills, and without huge sums of money to invest. Some of these vehicles require virtually no investment at all. All it requires is the desire, the will, and the perseverance to go for it and to keep at it until your residual income is at a level you're happy with. And of course you need to choose the right vehicle, and this is what this tape will help you to do.
Are you prepared to do something now that can change your life in a few years from now? You need to ask yourself that question. Maybe this thought will help you decide. You have two options in life. You can do something about creating wealth, or you can do nothing. Whichever option you choose, in 5 years' time you'll still be 5 years older. Five years would have passed you by, and those 5 years will be history, never to be regained. Would you rather end up in 5 years time in exactly the same situation you're in now? Or would you rather be much better off financially? The answer is obvious. We simply have to do something now to change our futures. If we don't, five years from now we'll still be wishing we could have more money. So to me the answer is so obvious. We need to to take action now to create residual income and change our tomorrow.
The search for a source of extra income
In the early 90’s, my colleagues and I started our search for the ideal vehicle to financial freedom. And, believe me, it's a search not everyone would want to go on. There are so many dead ends and blind alleys that cause you to waste a lot of time in the process. But it's all necessary if you want to find the right means to achieve your own kind of financial freedom and independence. Of course, now that we've done the work, there's no need for you to go through the same time-consuming exercise yourself. Just take advantage of what we've done, and use it for your own benefit.
Our aim was to secure our financial future and achieve the freedom to choose our own lifestyle with enough free time to enjoy our lives.
So, we realised we needed meaningful extra income, with the potential to make really good money — not just pocket money. We wanted money that could enable us to realise our dreams. And it had to include residual income.
We also didn't want to have our leisure and family time destroyed by extra long working hours, like working nights or over weekends. We wanted to enjoy the extra residual income that we generate, and not kill ourselves in the process of making money. And it had to be achievable without a huge cash investment.
What do I mean by financial freedom, or financial independence? Well, for us financial independence means a state of life where we don't have financial concerns, worries, or pressing financial responsibilities. It's a progressive thing, and for us financial independence means not having to go to work every day just to survive.
Financial freedom can mean different things to different people. For some it might mean simply being able to come out on one's income for the month. For someone else it might mean more — like the freedom to know that your bills are all paid, with cash left over at the end of each month. Or it could mean for you that you no longer have any bills or debts, that you're debt-free and bond-free and are able to pay cash for everything. And for someone else it may mean knowing that, in the foreseeable future, you'll never have to work again for the rest of your life. Maybe you should ask yourself, "What does financial freedom and financial independence mean to me?"
Can you actually imagine true financial freedom in your own life? You could wake up when the birds twitter and the dawn starts to break, instead of when some electronic alarm wakes you up with a jolt so you can get to work on time. And you can check out the weather, and decide what you want to do that day, because you no longer have to go out in pouring rain or freezing cold, to face the rush hour traffic, the office routine, or the boss's rules. And if you've owned your own business, you no longer have to deal with staff, suppliers, customers, credit control, and the like. Financial freedom doesn’t necessarily mean no work. But it does mean that you don’t work because you “have to” — to survive financially. You can now work because you “want to” — for the enjoyment of it. So, those are the kinds of things that people aspire to when they talk of financial freedom.
Do you have any dreams of your own? Do you ever "wish" you could have some thing, some situation — perhaps a new car, a home of your own, an overseas holiday? Or do you ever wish you could get rid of something that you currently have, such as debt, monthly hire purchase payments, a regular shortfall in your home budget, the bond on your home, or the stress of running your own business? Maybe you want to give this some thought. It will help you to put into focus what you really desire, and that will help you decide what vehicle will best help you achieve that.
Evaluating income ventures you find
When analysing income ventures and sifting out the good from the bad, we identified some factors that go to make an income venture successful, and other factors that are a recipe for disaster. I'm going to share these factors with you in a moment.
This will help you to avoid scams, and make it easier for you to decide just what it is you want, and to choose the best vehicle to take you to your dreams. It's a checklist for you to use when you wish to evaluate any income opportunity.
Whenever you come across an income opportunity, work with the checklist and see how the opportunity stacks up against the factors that are important when it comes to making extra money.
If you're in the right type of business, and it's the right vehicle, and you enjoy the work, then you're poised for success.
In the next module I'll take you through the checklist.
Checklist for evaluating income opportunities
We're now going to discuss how to evaluate second income opportunities. We're not looking at fulltime income opportunities or a career change, although a second income business might well turn out to be one's main source of income in years to come. At this stage we're looking for extra income, or a second income, with big potential earnings.
The first 5 questions in our list are about the industry, the kind of business, the investment and the risks involved. It's important to start here, because different people have different resources available.
The next group relates to what must be done by you to earn the income.
The last group relates to the income vehicle itself — the people or company offering the venture.
Okay, here we go.
No. 1: How much will I be required to invest upfront?
Cash outlay equals risk, and the higher the cash outlay, the greater your exposure to potential risk.
So, find out how much capital is required, and decide if you have it, and if you are in fact prepared to invest it in the venture. Most people seem to want a low-investment when it comes to a second income. And we think that's a wise position to take, considering all the unknowns. Remember, though, that all ventures do cost some money. There's no such thing as getting money for nothing. But be realistic and cautious. Be sure you're getting value for your money. Check out things like joining fees, any inventory you might be required to buy, any training courses you need to pay for, any related travel costs to get started, and so on.
No. 2: How much risk is there?
Be careful of opportunities that require a large amount of cash input upfront but don't offer immediate value-for-money in return. Also be careful of opportunities that work on a monthly subscription basis, where you're paying money over for some future promised benefit. Satisfy yourself that if you have to part with any money you will indeed get something for your money, and not just "hope". Or, if you do have to pay out money and there is some risk attached, make sure the amount is at a level where if you do have to write it off it won't be too serious for you. Look at the opportunity with eyes wide open so you know what you're letting yourself in for.
Sometimes a plan operator will build up his own wealth by collecting money from innocent and trusting subscribers who are promised future income or future benefits for their money. Then, when lots and lots of people have paid money to the plan, suddenly there is no more operator. He's disappeared off the face of the earth, and taken everyone's money with him. Does that sound familiar? That's typical of the pyramid schemes that have burnt many people's fingers, and made many people bankrupt.
Well, the message is simple. Minimise your risks and be careful too of “wonderful" schemes where returns are so stupendous that they can hardly be believed. Remember Masterbond? My colleague's uncle lost a lot of money by going for the “wonderful” interest rates, way beyond the industry norm. He took the risk and, sadly, he lost. Get rich quick is an alarm bell. Listen to it.
No. 3: How much operating expense is involved?
Did you know that statistics show that 80% of small businesses don’t make it to their second year. And of those that do, 80% don’t survive to their 5th year. A major reason is that the owners don't have enough working capital. In other words, they don't have enough money to finance their assets such as stock, debtors, etc., and still have enough cash available to pay their suppliers and cover their monthly expenses while their income is building up. So they simply run out of cash and the business goes down the tubes.
Some work-from-home businesses tell you how easy it is to just send out thousands of circulars or envelopes in the mail each week, or to advertise in the daily papers, and the money will come pouring in to your mail box. What they don't tell you is how much the printing, advertising and postage costs will be if you want to be successful at reaching your markets. With some of those mail order plans the only people who make money are the photocopy shop duplicating your mail order literature for you, the stationery store selling you the envelopes, and the post office where you buy the postage stamps.
So be sure to check out what operating expenses you'll need to incur. And, always be realistic and practical.
No. 4: How much time will it need?
Life's a journey; and we
should enjoy the ride. Ask yourself: "How much will it
encroach into my lifestyle, my family life, my social life, and my leisure
time? Can it be done without too much disruption to my life, without
having to give up a lot of my time?" How much time do you in fact
have available to devote to making extra income, while still being able to
enjoy the ride?
Sometimes promoters play down how much time
you'll need to spend on working the plan if you want to make good money
with it. They can make it sound so easy and quick to earn huge
amounts of money, when in reality it will take a great amount of time and
effort to be successful. And be very careful of get-rich-quick
schemes. They're more like a lottery: You write
the money off and maybe, just maybe you'll hit the jackpot. What are
your chances of making a quick windfall? And anyway, most get-rich-quick schemes aren't even
legal. So be warned!
Be realistic. If you're going to earn a meaningful second income, you will also have to do something for your money. There's no such thing as a free ride. But follow the maxim — work smarter, not harder.
No. 5: Will it interfere with my regular work?
You don't want the stress of having a programme, or a second business, that will interfere with your regular or main work if you have a job or you already own your own business. It's not good to get phone calls at work about one's part-time business. That takes your attention from what you're being paid to do. It's morally wrong; it creates stress, and it will almost certainly result in your work suffering, maybe even cause you to lose your job. We consider this a critically important aspect of creating a stress-free second income.
And if you already own your own business, you probably won't have too much time to be involved in a second business.
Also consider your own daily effectiveness at work. Will the extra income activity cause you to go to your regular work feeling tired and unproductive? So always check out whether it will encroach into your work life.
The next set of questions relates to the people and the company offering the income opportunity offering the venture — we can call it the "vehicle" you'll be using. The industry and the nature of the business might be great, but there can be both good and bad companies operating in the same excellent industry. So we need to choose a good one. Here are some pointers.
No. 6: Is the company stable and sound?
How long has the company been around? Does it have a good track record? Is it financially stable? Is it likely to still be around in 20 years' time?
The quality of its products is often a clue, as well as its growth rates. Another clue is how "open" the company is. Do you know who its top management people are? Is it possible to meet with them? Are they accessible?
Some promoters tell you to get in
on the “ground floor” before everyone else gets in ahead of you.
Those should be warning bells in your ears. Remember we want
residual income, so we want a company that will still be around in 20 to
30 years from now. If there's this urgency to get in early, on the
ground floor, then realise too that the reason for the urgency is possibly
because there won't be a second floor. The opportunity might not be
around for very long.
So, be cautious about ventures that seem flimsy,
where the company or the people offering the opportunity and paying out
the money might be here today but gone tomorrow. Even if there is a
low risk of actually losing money as such, it's still wise to be sure
you're not wasting lots of time, valuable hours — or even years — on
something with no real long-term future.
We would generally not
recommend a company which is younger than 2 to 3 years. Let them go
through their teething problems first. If they survive, great.
If not, then you won't have lost time or money.
No. 7: Is the nature of the business life-enhancing?
What is the nature of the product or service, and the work you must do? Is it legal? Is it ethical? Does it enhance the quality of life? Or does it involve making a quick buck at someone else's expense? Is it "clean" money?
Life gives you what you give out, and earning clean, uplifting money is a vital element in success, health and happiness in life. And if it isn't clean uplifting monye, then avoid the temptation to get involved with it.
No. 8: Does the venture offer added value?
Many get-rich-quick schemes and instant-downline networks don't really have anything of value that they're offering. This is why they fail. All they're offering is an opportunity to get rich. But how does one get rich? — by paying money for the privilege of being able yourself to offer others the opportunity to get rich. That's no sound basis for getting rich. That's a money-go-round, and a recipe for failure. It's like those adverts that say send 50 and I'll show you how to get rich. So you send the R50 and you receive a letter that says place adverts like I did and people will send you R50 and you just send them this same letter. That's nonsense! And it's that kind of scheme I'm talking about. They come in all shades and sizes, some very cleverly disguised to appear to be genuine. be warned! They don't work! They're illegal, and you'll just waste your money and your time, even if you don't end up in jail.
There needs to be something that people value, like a product or range of products, or a service — something you or others would want. If it doesn't offer value, then dump it and don't waste your time on it.
No. 9: Is there a way by which I can monitor my earnings?
With some income plans it's very difficult to know where you're heading, to measure your progress, and to verify your earnings. All you receive is your cheque with no supporting details.
So when choosing an
income opportunity, satisfy yourself (a) that you understand how you'll
earn money, and (b) that there is some way in which you'll be able to
verify your earnings.
The next set of questions relates to the actual
work that must be done to earn the income. This is crucial.
Sometimes people get caught up in the emotions of earning big money, and
they just leap in without thinking through exactly what it is they must do
to earn the money. Then once they're in the programme they discover that,
actually, the work required is just not their "cup of tea". So
they're on a road to nowhere before they've even got moving. So be
sure, beforehand, that you will be able and willing to do what is required
to create wealth in the particular venture you're about to
undertake. Here are some examples.
No. 10: Will I be required to sell something? Do I enjoy selling?
If you enjoy selling, then this won't be a problem for you. But if you're like many of the people we've spoken to, then selling is not something you want to do, especially cold canvassing for sales or recruits. So check out whether the work involved is something you feel you could handle comfortably.
No. 11: Will I be exposing myself to lots of "No thank you's"? Could I cope with that?
The feeling of rejection is possibly the main reason why many people don't like selling. They dislike that feeling they get when the prospective customer says "No thanks." But, no matter how many times you listen to that sales training tape on how to handle rejection, if you repeatedly hear the words "No thank you", it eventually starts to wear you down. Your enthusiasm wanes, you feel demotivated, and you might even decide to quit.
So be sure to determine if frequent "No thank you's" are a normal part of the business, and whether you believe you have the personality to handle that without a problem.
No. 12: Will I have to make presentations, or do demonstrations? Do I like that kind of thing?
University research in the USA has shown that top of the list of the things most feared by people, even higher than the fear of death, is the fear of speaking in front of a group of people. People in general are ‘terrified’ of standing up and giving a talk to a group of people. For me this was not a problem. After all, I'm a consultant and am accustomed to talking to groups of people at all levels of an organization. But lots of people won't do that. You might enjoy doing it, or you may be terrified of it. Assess your own abilities and decide if it's for you.
No.13: Are regular meetings essential for success? Will that suit me?
Sometimes regular meetings are a vital activity for success. In the traditional network marketing industry, for example, success depends on distributors bringing new people to business opportunity presentations every week in order to hear about the business opportunity. Our investigations have shown that many people don't enjoy this. They simply want to be able to work from home, without having to go out at night on a regular or frequent basis.
So check out this aspect carefully, and decide whether it will be an aspect that you'll be happy with.
No. 14: Will it work for me if I'm not in a big city?
This is particularly relevant if talking to customers or prospects face to face is a vital aspect for success, where you'll need to talk to lots of people on a personal, face-to-face basis. Lots of people are found in large cities, not in small towns or on farms. If you live away from any large city or town you should ask yourself whether you could be successful with the business you're considering.
That leaves the last two big issues:
No. 15: Does the company offer a good residual income component as well as renewable income?
As I've said, if you want extra income to make a permanent change in your financial situation, and also your quality of life, then residual income is a critical component that you need to have.
Check out the compensation aspect of the venture. Does it include a good residual income component?
By the way, residual income often builds up slowly at first, and some people don't have the patience to wait for it to reach a meaningful level — which could take 2 or 3 years. If you're an impatient person, then you might need a venture that also offers now money, so that while you're busy building up your long-term residual income, you also have some extra money now, to keep you motivated and help you with today's income needs.
No. 16: What does my intuition tell me?
So often people fail to listen to their intuition. Test the plan against your intuition — what you FEEL in your gut. It's your higher intelligence talking to you. Don't ignore it either way.
So, those are some of the more important factors you need to consider when evaluating and choosing an income plan for yourself.
We used these same factors, and more, when evaluating income alternatives, and we discarded many of the possibilities because they didn't match up to what we were looking for.
Download my free income opportunity evaluation schecklist
I've created a free checklist that you can use for evaluating various opportunities against the criteria I have discussed above. It's a form that lists the 16 criteria, with columns for checking how each opportunity stacks up agains those criteria. And to enable you to access the full text of the discussion given on this Web page, I'm including everything on the same PDF document -- the information sabove, plus the checklist form. It's yours for the taking - no strings attached.
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All the best!
© Copyright 2007 Gavin Hoole ~ FREEtime. All rights reserved