Serious Eater: The Financial Details Behind Food Blog SeriousEats.com

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If comparing this blog to the restaurant world, I like to think of it as the stubborn Mom & Pop hole-in-the-wall with one location. It’s been around for a long time, but there are no second locations, no franchises, no frozen food line. It was never sold to a private equity firm or some publicly-traded corporation. It owns the building and the land underneath, so it can just keep on doing its own thing.

When I first saw the book Serious Eater: A Food Lover’s Perilous Quest for Pizza and Redemption, I had no idea who Ed Levine was. I originally thought that Serious Eats was a little food blog run by J. Kenji Lopez-Alt as a side gig outside of his day job, just as I started MyMoneyBlog.com. I don’t live in New York and had read a few posts like their viral posts like the In-N-Out Menu Survival Guide and now use their reversed-sear prime rib recipe every year.

The truth is actually very different, and I quickly became engrossed in the story behind Serious Eats.

  • Instead of a young blogger working out of their tiny studio and a $10/month web-hosting package, Ed Levine was a former advertising executive in his 50s who started out immediately with a salary for himself, a salaried team, and an office space. This was possible due to a $500,000 loan from his older brother.
  • Instead of running lean and looking for profitability quickly, Serious Eats never made a profit from 2006 to 2015. It grew in viewership and gross revenue, but my understanding is that even when it was eventually sold, the advertising revenue never exceeded the running costs (salaries, office space, other overhead).

Ed Levine was obsessed with food and the stores behind it. You can get a taste of his energetic personality in this 1997 NYT Times article “On an Odyssey With the Homer Of Rugelach” by Ruth Reichl.

Her story in the Times called me the “missionary of the delicious.” Ruth described what I did better than I ever could: “Mr. Levine is on a crusade to see that the people who make food get the recognition they deserve. He sees them as creative artists waging a losing battle against mechanization, and he cheers them on.”

Serious Eats was definitely a passion project. However, Mr. Levine never excelled at the financial side. In fact, this was his first true business venture.

But that was before I understood a fundamental truth about individual investors: just because someone has made enough money to invest in a speculative venture like Serious Eats doesn’t mean they won’t be upset if they lose it. That goes double if they are family. People who have made money usually didn’t make it with a casual attitude about money in general.

However, he did raise a million dollars of startup money from family and friends, so you have to give him that. He had the charisma and infectious optimism that convinced people to bet on him:

And just like the folks at a victory party, we really felt we were on a mission: to change and democratize the food culture through food media without dumbing it down or pandering. Maybe art and commerce could coexist peacefully. Maybe they could even complement each other. Maybe my belief that creating good content could and would lead to financial success wasn’t as ridiculous as the money guys seemed to think.

Serious Eats grew in popularity. If you are at all interested in food, you’ve probably heard of it.

Back at Serious Eats World HQ some of our posts were going viral. Kenji chronicled in words and pictures the “In-N-Out Burger Survival Guide,” in which he ate every single item on its twenty-eight-item secret menu. That one post attracted 3.5 million unique visitors in the first year it was up.

However, they never really stopped burning through money. They missed the boom time of website sales before the Great Financial Crisis of 2008. They later tried to sell to a variety of different buyers in 2010 to 2011, but that was a slow period in media acquisitions.

Ed Levine went back and begged and borrowed money from every source imaginable. He borrowed even more money from his older brother, eventually making the total owed somewhere over $600,000 (I lost count). He accumulated $650,000 in personal debt that was straining his marriage, as it was backed by the New York apartment jointly owned with his wife. His wife Vicki later took on a margin loan backed by her personal stock holdings. Multiple close friends lent him $100,000 each. In other words, he was risking all of his closest personal relationships.

In fact, the most harrowing details I’ve had to relive in writing this book have nothing to do with financial security, only the terrifying knowledge of how close I came to doing real damage to the relationship that made it all possible.

You could feel the desperation at this point. It’s all about timing, as if you’re selling an unprofitable growth business, you need buyers with loose money and an appetite for risk. (Look up the current status of WeWork.) Somehow, he finally sold Serious Eats to Fexy Media in 2015. The details are blurry, but it seems that the investors were mostly made whole and Levine was able to pay back all his debts with a small bit of profit. He’s now an employee, not the owner, but perhaps that is for the best.

But thankfully, it’s not quite so personal. Most everyone who works at Serious Eats these days thinks of it as a business first and then, perhaps, a calling. Some people who work at the company may just think of their job as a really good gig. I’m okay with that. Maybe that’s why Serious Eats is doing so much better as a business. Serious Eats is growing up. And that’s okay. So have I.

In the end, this amazing story was powered solely by the energy of Ed Levine (and the equally-amazing support of his wife Vicki). I feel like it really shouldn’t have worked out at all. The climax felt a bit like the ending of the movie The Gambler. You don’t know much about running a website (or any startup), you burn through over a million dollars of money, and your passion is eating and sharing about food. However, he made it out intact and helped establish other talented food writers like J. Kenji Lopez-Alt, Max Falkowitz, and Stella Parks.

This reminded of these tweets about taking asymmetrical risks that have been stuck in my head:

Maybe you can try to make the risk asymmetric, but in the end there is no easy formula. I could not have taken the risks that Ed Levine did with Serious Eats. It would have been a foolish risk for me, as I could never tolerate the financial risk nor the relationship risks. However, when I read about others it seems they are compelled to take such big risks, and somehow it their boldness it can all work out. Of course, I suppose there wouldn’t have been a book about Serious Eats to read if it didn’t.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Pioneer Woman & The Magic of Untreated Boredom

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I hope that everyone had a boring Labor Day weekend! I say that because boredom is a magical thing, especially when left untreated with a computer/TV/smartphone screen. I had a lovely quiet afternoon where I sorted out a big box of old electronics, and my mental wanderings inspired me to make some important changes in my daily schedule.

It turns out that Ree Drummond understands. Now, I’m more of a Barefoot Contessa fan myself, but the Pioneer Woman brand has grown into an empire. TV show, magazine, cookbooks, and I’m sure some sort of branded kitchenware. You’re not a real food celebrity until you have kitchen towels and cutlery with your name on it. Let’s see… Check and check!

I just stumbled upon this older New Yorker magazine profile, which revealed the origin story. Before that, she was a stay-at-home-mom that got pregnant on her honeymoon and continued to have four children. Then one day…

One morning in May, 2006, eleven years after Drummond arrived in the country, Ladd announced that he was taking all four kids, including one-year-old Todd, who would sit in the saddle with him, to work cattle. “He said, ‘You stay home and take time for yourself,’ ” Drummond recalls. “It was literally the first time I had been alone in the house for a several-hour period.” Usually, when she had a free moment, Drummond hopped on a homeschooling message board, which she frequented for adult interaction. But that day she decided “to start one of those blog things.” She had read only one blog, Doc’s Sunrise Rants, written by a homeschooling single lesbian mother of triplets in Oregon. But she thought it seemed like a fun, efficient method of keeping in touch with her mother, who had divorced her father and moved to Tennessee.

This struck a chord with me because it was similar to how this blog got started. My wife and I had just gotten married and moved to Portland, Oregon for her new job. I managed to get a remote working position, but that meant that there was no longer a nearby office for me to visit each day. I no longer had a desk. There I was, in a brand new city with no friends, no co-workers, and a wife that worked 60-80 hours a week. I became bored out of my mind! I also decided to start “one of those blog things”, which led to other related businesses, and so on.

Now, I don’t have a global media/cutlery empire, but I still think that boredom can be a powerful thing. According to this Wired article, academic research agrees. When you are in a constant state of stress, when you are constantly putting out fires (or changing diapers), all you are doing is reacting. Occasional, extended boredom gives space for your creativity to grow. When was the last time you really let yourself get bored?

Comic source: XKCD

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Can You Teach Your Kid To Be Rich?

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There is an ongoing debate about personal finance education in school. It sounds like a good idea, but multiple studies have found that financial literacy classes don’t really improve future behavior. It may be too much to expect an easy fix to such a complex problem.

As a parent, how do you best set up your kids for financial success? In the end, how can you really tell if you made a difference anyway? You can only try your best. My personal philosophy boils down to this famous proverb:

Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.

Some parents plan on giving their kids a big pile of fish. An inheritance. Real estate. A business to take over and run. That’s out of love, and I am not judging that choice. I might leave them something, but I’m going to tell them to expect nothing. Instead, I hope they will see that I put in a lot of effort to help them develop the tools to go out and “fish”, and that as adults it’s up to them to make money for themselves.

To be clear, this is not the only thing that I am teaching them. Good relationships with family and friends are more important than an early retirement. However, I have observed several specific traits useful in navigating the financial world. As a result, I want to help them:

  • Develop good character traits like self-discipline, gratitude, and perseverance. If they can control their emotions, have empathy for others, and endure hard work, it helps everything else.
  • Obtain quality formal education. If they are going to solve the world’s problems, they need a strong, wide base of knowledge. A solid education and good teachers can really inspire and change a child’s life.
  • Experience entry-level hourly work in the retail, construction, and/or food service industries. They should understand how hard it is to make a living without specialized skills.
  • Create their own business ventures. I plan on helping them start any kind of micro-business that they want. It might be even better as a non-profit, donating the proceeds to the community. Through this, they will learn basic accounting, marketing, and interpersonal skills.
  • Improve interpersonal skills. Across all of their activities, from school projects to extracurriculars (sports/arts/music) to starting their own business, learning how to work with others is key.
  • Feel encouraged to take calculated risks. There are many ways to take asymmetrical risks where the upside is huge and the downside is small. This especially true when you are young and without dependents. I want them to take such risks.

None of the factors above require a ton of money, although private schools can be quite expensive. The best option may be maximizing the public school options available. My parents rented a small apartment in a good school district, as they couldn’t afford buying an expensive house with high property taxes. I only realized this recently when I visited our old duplex and found a house down the street listed for nearly $2,000,000 (median price in this city is $370,000).

I do plan to contribute to a 529 plan and minimize student loan debt. Maybe college tuition will be more sane in 15 years, but I think this is the best use of cash right now – keeping them from having to fight the power of compound interest in reverse. (I also classify paying for education as “teaching them to fish”.) I want to show them that we value education and also strive to avoid debt whenever possible.

Bottom line. How does anyone get rich? Most people who got rich quickly had equity in a business venture. This takes a combination of specialized skill, interpersonal skills, risk-taking, and luck. Most people who got rich over decades got there with a steady career, work ethic, patience, self-discipline when it comes to spending, and investing the difference repeatedly. I’d be happy with my kids taking either path, and tried to think up a list of ways to help promote these traits.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Solo 401k: Best Self-Employed Retirement Plan For Aggressive Savers ($50k/$100k Income Example)

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Each December, I run the numbers to see how much more I can contribute to my Self-Employed 401k plan, aka Solo 401k or Individual 401k. Fidelity, Vanguard, and Dinkytown (used below) have calculators to figure out contribution limits to various types of retirement plans (Solo 401k, SIMPLE IRA, SEP IRA, Profit Sharing Plan).

In general, as long as your income isn’t too high ($275,000+) and you aren’t deferring salary from another workplace retirement plan, the Solo 401k will allow you to defer the largest percentage of your business income. This is because the Solo 401k allows you defer as much as $18,500 (2018) in salary as an employee as well as 20% of your net self-employment income as an employer (both sides of your business) up to $55,000 total (2018). For example, if your income from your side business was $5,000 and you had no other salary deferral elsewhere, you could put 100% of that into a Solo 401k. (If you are age 50 or over, you can also add a $6,000 catch-up contribution to the salary deferral limit.)

Here are sample numbers for a $50,000 net income to your self-employed business. This assumes you are a sole proprietorship or an LLC taxed as a sole proprietorship. The math for a single-owner corporation is slightly different.

At $50,000 net business income, you can defer 56% annually ($27,793). This is exactly $18,500 more than if you went with the SEP-IRA.

Here’s the comparison for a $100,000 net income to your sole proprietorship.

At $100,000 net business income, you can defer 37% annually ($37,087). Again, this is exactly $18,500 more than if you went with the SEP-IRA.

Now, the Solo 401k does require a bit more paperwork. For example, you will need to file the IRS Form 5500-EZ separately every year once your Solo 401k assets exceed $250,000 to avoid steep IRS late penalties. SEP-IRAs have no such annual requirement. Therefore, if you don’t intend to take advantage of the higher contribution limits of a Solo 401k, I would consider sticking with the SEP-IRA. But if your goal is a high savings rate and maximum tax-deferred funds, look into the Solo 401k. I would compare the offerings from Vanguard, Fidelity, and Schwab. (Mine is at Fidelity.)

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

How To Enable Auto Sweep on Paypal Accounts (2018)

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If you use PayPal to accept credit cards for your small business (eBay, Etsy, e-store, freelance, etc), you may not want to keep your money sitting at PayPal (especially if you are earning higher interest in your bank account). There is a feature called Auto Sweep that checks daily and automatically “sweeps” any money that arrives in your PayPal account into your bank account overnight.

The Auto Sweep feature used to be easily found in their settings. Then they moved it into a dim corner of their website that was harder to find. Last week, I couldn’t find it at all. After digging through several outdated articles, it turns out that as of 2018 you can’t access the feature at all unless you call in and ask for it explicitly. Not exactly customer-friendly behavior, but PayPal makes money off your idle balances… (The PayPal Money Market fund that offered higher interest shut down in July 2011.)

Here’s how to enable Auto Sweep on your PayPal account as of 2018. This is another post for the benefit for others searching online. First, make sure you meet these requirements:

  • You must have a Business PayPal account in good standing.
  • You must have a bank account linked to your PayPal account.
  • You must have lifted your withdrawal limit and verified your PayPal Account.

Next, you must call PayPal directly via phone.

  • Once logged into your PayPal account click Contact at the bottom of the page.
  • Choose the Call Us option and call the number listed for your account. Use the unique code to quickly identify yourself to them.
  • When you reach a human, explicitly ask for “Auto Sweep” to be enabled on your account.

After that, they will flip a switch on their end, and you should finally be able to see the option enabled on your online account. Log back into your PayPal account and follow these instructions:

  • Click Profile beside “Log Out” and select Profile and settings.
  • Click My money.
  • Click Set near “Automatic transfers.”
  • Click Edit.
  • Click Yes, select the bank you want your money transferred to, and click Save.

Here’s what you should see after Auto Sweep has successfully been turned on:

There you go. Note that if you ever manually request a cash transfer from a bank account to your PayPal balance, that this would automatically turn off Auto Sweep. I guess the money running around in circles causes a tear in the time-space continuum or something. (You can go back an turn Auto Sweep back on manually.)

If you activate this feature, it may also change your how you use the PayPal Business Debit card, as there will no longer be any cash balance in your account to draw from. For non-PIN signature purchases, these will still work if you first link a bank account as a backup source, and then the debit card charges will pull from your designated backup source. You can also link up certain PayPal credit cards (source), but not just any credit card as backup. For ATM withdrawals, you will not be able to make ATM withdrawals with a zero PayPal balance (source).

I wouldn’t really recommend using the debit card anyway, there are much better small business card options with no annual fee.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Modern Newspaper Delivery Boy = Kid’s YouTube Channel?

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paperboyWhile reading the intriguing autobiography of successful investor and mathematician Edward Thorp, it was mentioned that he was a newspaper delivery boy. Warren Buffett was famously a newspaper delivery boy, and still conducts a newspaper-throwing contest at annual Berkshire shareholder meetings. Coincidence?

Newspaper delivery boys and girls had to develop responsibility, dependability, self-motivated, and people skills (they often had to do the bill collecting). I don’t know if there are any such paperboys/papergirl positions left in the country. Here’s a nostalgic write-up about what it was like: Whatever Happened to the Newspaper Delivery Boy?

According to various sources, these famous business leaders, actors, activists, scientists, and even presidents were also paperboys. (I guess gender stereotypes applied? Kathy Ireland is the only girl on the list.)

  • Walt Disney
  • H. Ross Perot
  • Bob Hope
  • Ed Sullivan
  • Danny Thomas
  • John Wayne
  • Bing Crosby
  • Dwight D. Eisenhower
  • Herbert Hoover
  • Martin Luther King Jr.
  • Harry S. Truman
  • Ed Sullivan
  • Isaac Asimov
  • Tom Brokaw
  • Wayne Gretzky
  • Jackie Robinson
  • Kathy Ireland
  • Tom Cruise

I wasn’t a paperboy, or especially entrepreneurial when I grew up. Sometimes I would hoard my lunch money and just go hungry until I got home in the afternoon, but that was about it. I suppose I didn’t have a lot of wants, so I didn’t need a lot of money. I do remember being impressed by the kid in our class who bought candy in bulk from Sam’s Club and sold it individually to students.

What is the modern equivalent of a paperboy? I propose the YouTube video channel. If you are an entrepreneurial kid who wants to develop the skills that will help you navigate the business world in the way that newspaper carriers did in the 1970s, these days you probably have a YouTube channel. A lot of them seem to review toys, but others act out skits, cover travel destinations, or discuss current events. Here are the applicable skills:

  • Responsibility and dependability. You may not have to show up every day at 5am, but if you don’t create content regularly, you won’t grow an audience.
  • Self-motivation. There are probably some pushy parents out there, but I think your passion for the subject will show through in the videos.
  • Media creation skills. You will learn the technical skills required to set up equipment, edit audio/video, and all that behind-the-scenes stuff.
  • Talking in front on a camera. You must communicate clearly with your audience. This is similar to talking in front of a group of people.
  • Advertising negotiations? Some of the bigger channels have brand sponsors beyond just the pre-roll YouTube ads. The kids may have to get involved with these discussions.

There is a lot of inconsistent information about YouTube revenue. From the shocking This 6-year-old makes $11 million a year reviewing toys on YouTube to the more balanced Can Vloggers Really Make a Fortune? to the buzzkill ‘Success’ on YouTube Still Means a Life of Poverty. I’m sure a small percentage are doing awesome, but most are not. Isn’t that how it always works for creative pursuits? JK Rowling is rich, but most fantasy authors are not. But hey, if you’re a kid and making $100 a month and having fun creating something (all while learning useful skills shhhhh), isn’t that a pretty nice accomplishment?

Any readers out there with children who have earned money from YouTube?

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Charlie Munger’s Life as a Financial Independence Blueprint

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blueprintCharles Munger is probably best known as the Vice Chairman of Berkshire Hathaway and partner of Warren Buffett. The University of Michigan Ross School of Business recently shared a hour-long talk with Munger on YouTube (embedded below). Munger has plenty of mentions on this site already, but my main takeaway from this talk was a more nuanced overview of his early years and how he personally achieved financial independence before really getting involved with Warren Buffett.

Here is a summary of my notes from the talk:

  • He was not born poor, but he was also not born into exceptional wealth. Munger wanted to go to Stanford for undergrad, but his father encouraged him to go to the University of Michigan as it was still an excellent school but more affordable. He ended up dropping out after only one year in 1943 to serve in the US Army Air Corps.
  • Military service, then law school. After World War II, he took college courses with the GI Bill and eventually went to Harvard Law School (getting accepted even though he never earned an undergraduate degree).
  • Successful law career. He practiced as a successful real estate lawyer until he achieved about $300,000 in assets. This was 10 years of living expenses for his family at the time (he now had a wife and multiple kids). At this point, he started doing real estate development at the same time. When this took off, he stopped practicing law.
  • Successful real estate development. When he achieved about $3 to $4 million in assets, he also wound down his real estate development firm. He was now “financially independent” but still mostly anonymous.
  • At this point, he decided to become a “full-time capitalist”. This last stage is what led him to his current status as a billionaire philanthropist. Along with his work with Warren Buffett and Berkshire Hathaway, he was also the chairman of Wesco Financial, which also grew to be a conglomerate of different wholly-owned businesses along with a carefully-run stock portfolio. Wesco Financial eventually became a wholly-owned subsidiary of Berkshire Hathaway.

Using Charlie Munger’s life as a blueprint, here’s a pathway towards financial independence.

  • Work hard, get an education, develop a valuable skill. Munger didn’t start Facebook from his dorm room or trade penny stocks in high school. He served in the military, earned a law degree, and went to work everyday for years. At this point, work means exchanging your time for money, but hopefully at a good hourly rate.
  • Use that work career and save up 10x living expenses. Munger called himself a “cautious little squirrel” saving up a pile of nuts. He dutifully saved his salary while supporting a family and kids (and some other personal family drama that a luckier person wouldn’t have to deal with). I don’t think you’ll need 10x if you don’t have a family to support.
  • To accelerate wealth accumulation, you can now take some more risk and start some sort of business. You need something that scales, something that’s not paid per hour. Munger did real estate development. If you look at people who got wealthy quickly, nearly all of them are business owners of some type.
  • At some point, your investments will enough money to support your living expenses. This is financial independence. It doesn’t matter what you do during the day, as you earn enough money while you’re sleeping. However, many people choose to continue doing one of the paths above: (1) employee-based career, (2) active business management, or (3) actively managing their investments.

Bottom line. Charlie Munger offers up great words of wisdom in this talk. He reminds us that our choice in marriage is much more important than our choice in career. He reminds us that just showing up every day and plugging away will yield great dividends over time. He reminds us that easy wealth without work is not a good thing for society. (He also says to give Bitcoin a wide berth.)

However, you can also learn a lot by noting and observing his actions. Munger was not a huge risk-taker. He grew his wealth in steps and never exposed his family to possible ruin. He worked hard for a long time and only became extraordinarily rich and famous later in his life. He primarily wanted to be independent “and just overshot”.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Scott’s Pizza Tours: Unconventional Entrepreneur Turns Passion into Business

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sptmovieI’m a sucker for people turning their unique interests into a profitable small business, especially a quirky one-person business (like this person who farms food from other people’s yards). My newest discovery came from watching the Scott’s Pizza Tours documentary about Scott Wiener, who turned his passion for pizza into a successful tour business and more. Below is a more bio and the trailer (direct link):

He runs a successful tour business in NYC, where he leads visitors to some of the best and most historic pizzerias in the world, teaching the history and science of pizza making. He writes a monthly column in Pizza Today magazine, is a legend in the pizza industry, judges pizza competitions, eats 15 slices per week, and–oh, yeah–he’s the Guinness World Record holder for the largest collection of pizza boxes, now numbering nearly 1,000 different boxes from 55 countries, selections of which are currently touring through gallery spaces in the U.S. and Europe, with tentative exhibitions planned for Asia and Latin America. In his spare time, he founded and organizes Slice Out Hunger, an annual event, which has raised over $70,000 for hunger relief organizations in NYC.

Are you happy with the path are you on? In one scene, Scott describes how he used to have a desk job with the government. After his first year, they had a little celebration and said “Hurray, only 24 years left until retirement!”. That statement really shook him, and he put in his resignation notice the next day.

“Follow Your Passion”: Too idealistic… or actually practical advice? You can’t make good money at something unless you’re good at it, and it’s very hard to get good at something if you don’t like it. That means passion fuels 2 out 3 parts of the pie (pun intended). If you can figure out how to make it well-compensated, you’re golden. Here’s a quote from Charlie Munger:

I have never succeeded very much in anything in which I was not very interested. If you can’t somehow find yourself very interested in something, I don’t think you’ll succeed very much, even if you’re fairly smart. I think that having this deep interest in something is part of the game. If your only interest is Chinese calligraphy I think that’s what you’re going to have to do. I don’t see how you can succeed in astrophysics if you’re only interested in calligraphy.

Dream job: Goal vs. Journey. Did Scott Wiener write down one day that his dream job would be to teach tourists about pizza history? No, it was a result of incremental daily movements. I’m reminded of the High Fidelity movie scene where John Cusack’s character makes a list of his top 5 dream jobs if “qualifications, history, time, and salary were no object.” After going through them, he realizes that he is already doing one of his dream jobs, owning his own record store.

I saw Scott’s Pizza Tours on the Viceland cable TV channel, but you might also be able to see it for free on Hoopla if supported by your local library. Otherwise, you can buy/rent on Amazon/iTunes/YouTube.

p.s. If you live in the NYC area, the 2017 edition of Slice Out Hunger’s $1 Pizza Party is on Wednesday, October 4, 2017. I’m impressed he even leverages his passion to raise money for a good cause (over $70,000 so far).

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The Rise of Sole Proprietorships, LLCs, and S-Corporations

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The Tax Foundation has an interesting article on pass-through businesses, where the business income “passed-through” to the individual income tax return of the business owner. Pass-through businesses include sole-proprietorships, partnerships, S-corporations, and LLCs designated to be treated as sole-prop/S-corp/partnerships for tax purposes. These usually represent small businesses started by an individual, couple, or very small group of people.

You may be surprised to know that 9 out of every 10 companies in the US are pass-through businesses. These aren’t just dinky lemonade stands, either. Pass-through businesses combined earn over half of all business income, and they employ the majority of the private-sector workforce.

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The ranks of solo entrepreneurs are growing. If this path sounds attractive to you, you won’t be alone! Being an entrepreneur is not a requirement for financial independence, but I believe that enjoying what you do everyday does help a lot. Some people are quite happy being an employee of a large corporation or government entity. Some might yearn for increased autonomy. Still others do both with a side business, aka “side hustle”.

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A sole-proprietorship is the default business type for a US individual. You got paid for mowing someone’s lawn? You’re a sole-proprietorship. You decided to drive for Uber? You’re a sole-proprietorship. This website started out as a sole-proprietorship and later became an S-Corporation to save money on self-employment taxes.

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Solo 401k – Best Retirement Plan for Self-Employed Business Owners

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solo401kThe wealth management group Del Monte published a whitepaper on Solo 401k plans, calling it the “financial industry’s best kept secret” and a “powerful and underutilized” retirement plan for self-employed business owners. The 4-page PDF does a good job at summarizing the benefits of a Solo 401k, aka Self-Employed 401k. Perhaps most importantly, the Solo 401k allows the maximum annual tax-sheltered contribution (or ties for the max) for all income levels and ages.

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Here’a a quick benefit comparison against the SEP-IRA and SIMPLE IRA:

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The key difference is the Solo 401k allows an $18,000 salary deferral at any income (i.e. if you make $18k or under, you can put aside all of it) for 2017 and then adds on a profit-sharing component. In addition, Solo 401ks a larger additional “catch-up” contributions at age 50.

I’ve had a Self-Employed 401k through Fidelity for several years, and I have been quite happy with it. The paperwork has been minimal, although you must start filing IRS Form 5500-EZ once your asset exceed $250,000 or face significant penalties. (It’s one page long.) It has been quite flexible – I am able to purchase mutual funds, ETFs, individual stocks, CDs, and individual Treasury and TIPS bonds. There is no annual fee and I’ve only had to pay trade commissions. Fidelity also accepts rollovers from outside IRAs and 401k plans.

Vanguard, Schwab, and TD Ameritrade also offer cheap in-house Solo 401k plans that work well for low-cost DIY investors. There are now several independent providers with “custom” 401k plans which can offer features like 401k loans the ability to invest in alternative asset classes (precious metals, tax liens, real estate, private equity, etc.) at additional cost. Vanguard and TD Ameritrade offer a Roth option; Fidelity and Schwab are only available with “traditional” pre-tax contributions.

Another option to consider is the Solo Defined-Benefit Plan, or “Solo Pension”. The annual maintenance fees are higher and the IRA requirements are significantly more complex, but you can make much larger amounts of tax-deferred contributions (dependent on age and income). The most affordable option appears to be the Schwab Defined-Benefit Plan. If anyone has any experience with this plan, I’d like to hear about it and would be open to a guest post.

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Work + Skill + Luck + Risk = Big Success

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A new book called Barking Up the Wrong Tree by Eric Barker promises to reveal surprising facts about what really determines success. The publicity tour has generated several articles about how high school valedictorians are less successful than you might think:

Beyond the clickbait, what really happened? I haven’t read the book, but I did learn that Dr. Karen Arnold of Boston College tracked 81 high school valedictorians and salutatorians for 14 years after graduation. Here are some of the findings of this study:

  • 95% went on to graduate college.
  • The average college GPA was 3.6.
  • 60% went on to receive graduate degrees.
  • 90% were in professional careers.
  • 40% are in highest tier jobs (not exactly sure what this means).

Apparently, none of the subjects became billionaires or “changed the world” in a meaningful way. Why not?

The theory is that high grades are a product of conformity and obedience, while being “successful” is about mastering a unique skill and non-comformity. Research has found that high grades are only loosely correlated with intelligence. In addition, out of a survey of 700 millionaires, the average GPA was only 2.9. If you are devoted to a single passion, it can be hard to have good grades in all subjects; thus you tend to struggle in high school.

My question is – How you define “success”? If it’s a respectable career with above-average income, it seems that being valedictorian gives you a much higher chance for that. There’s a reason why many parents want their kids to get good grades and become an engineer, doctor, accountant, or lawyer. You are playing the odds. There are many starving artists and writers, but not many starving nurses.

If “success” is becoming a billionaire, then yes it seems that being a valedictorian may not match up with that. If you want to get rich quickly, you’ll need to start your own business and take some sort of ownership stake. The richest people all own something – music copyrights, book copyrights, businesses, real estate, something.

The difference is taking risks. By definition taking a risk means there is the chance of failure. A small business can make you rich, but most small businesses end up failing. However, you’ll only get graduation speeches from the winners. This is called survivorship bias, as this XKCD comic explains:

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There is no direct formula for success, but you can still break it down into the required parts:

Work + Skill + Bad Luck + High Risk = Failure + Experience

Work + Skill + Good Luck + High Risk = Success + Experience

No Work + Good Luck = Failure

The takeaway is that you need hard work, valuable skills, taking a risk, and some luck. Luck plays a role, but you need the other three or you have no chance at all.

If you can be a high school valedictorian, I feel you are able to do hard work and thus have the ability to develop valuable skills. That’s a good base. The difference is… will you take the risk? Will you risk putting all your time and energy into developing a skill or a company that may or may not result in something valuable? Will you accept that chance of failure? Or would you rather go with the odds and do something with more reliable results? Perhaps statistically valedictorians take less risk than other groups.

I plan on advising my kids to take calculated risks when they are young and can devote 70 hours a week to a single task. That’s possible when you aren’t taking care of your kids (or your parents). However, I would also teach them that a reliable stream of above-average income plus a high savings rate equals financial freedom, aka early retirement in 10-20 years. (Getting rich via ownership just accelerates the process even further.) Once you have that financial freedom, you can do whatever you want with your life. Start a charity, write a novel, spend time with family, travel the world. Living a lifestyle aligned with your values certainly sounds like “success” to me.

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Frugal Entrepreneur Earns $5,600 a Month Farming Other People’s Yards

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Here’s a cool story at the intersection of entrepreneurship, frugal living, and sustainable farming. Jim Kovaleski is a one-man farm, growing produce and selling it at local farmers markets, earning over $5,000 a month. What’s unique is that he doesn’t have a central plot of land – he grows his plants on other people’s residential yards in Florida and Maine. Some stories say he “leases” the land but in the interview below he says he doesn’t pay in cash, only in veggies.

He’s profiled above on the Justin Rhodes YouTube channel. Found via Kottke.org.

This nomadic gardener travels between Maine to Florida gardening leased front yards. With a frugal lifestyle and revenues as high as $1.5K a week, he’s living the dream.

It’s not an easy job, but he gets to work on his own terms while developing a unique set of skills. I’m impressed both by the yield he gets from relatively little space, and how he keeps people’s front yards looking relatively nice (as opposed to industrial or commercial). If you live in a neighborhood with the right vibe (like my old one in SE Portland), this idea could probably be replicated.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.