Welcome to the second Monday of the New Year! Did you read through your New Year’s resolutions this morning? If not, do it now. You’ve been practicing your new, better life for a full week. You’ve been eating better, exercising more, getting to work earlier, and doing everything a little smarter than you did last year. You are easily ahead of 75% of those who started out – just seven days ago – alongside you. Today, you are going to make yourself a promise that will have a major long-term payoff. (I did this about five years ago, and it has made a big difference for me.)
I’m talking about investing in a side business. Not a business that will distract you from your primary job (anything that does that will ultimately diminish your success) but something you can do that complements what you are doing now. Something that doesn’t take a lot of time but can give you an extra source of income and increase your wealth. For example, perhaps your primary business currently spends a lot of money on telemarketing and you know a great telemarketer you can trust. In that case, you might consider doing a deal with him whereby you finance a side business and he runs it.
You would enjoy half of the equity and half of the income, but (in return for your financial support), he would be in charge of the hassles. There are so many possibilities – even if you are in a corporate career and don’t have the chance to spin off of something you already have going. Ancillary money streams (including some from real estate investments) now make up 20% of my income. It’s a good feeling to know that if I have a bad year in my main business, there is something else that can pay the bills. My personal goal is to add at least one viable new source of income per year and see that 20% number increase to 30% and then 40% and eventually to an amount that will be enough for me to “retire” on.
Of course, I won’t retire. I don’t believe retirement. But it will be nice to have the option. If you don’t have a second source of income (aside from your stocks and bonds), promise yourself, today, that you will have one before the end of the year. You don’t have to start anything big. And you don’t have to take major risks. Make a deal. Invest in something you know about. But get something going. Give yourself a specific financial goal. That your side business will eventually generate, say, $20,000 a year. It doesn’t have to do so right away (and probably won’t, because it will be growing and you will need to repay your capital investment), but you should be confident that it will make that much for you in five or 10 years. Ten grand here, 20 grand there – and all the while, you are building up equity. Five years will go by very quickly. If you start now, you’ll be very grateful you did when I remind you about it in 2006.
A word of advice: If you decide to go into business with a partner, make sure that either you control the business or that the two of you (even if it’s your spouse) have previous business experience working together – or you’ll regret it. One more thing: Make sure you establish your new business as a separate corporation, because a properly incorporated second income will provide you with several significant tax and legal benefits. Think of it this way: Individuals earn money, pay tax on that money, and then spend what’s left over. Corporations earn money, spend as much of that money as they want, and pay taxes on what is left.
Incorporating your extra income also protects you against lawsuits. An individual who is sued can lose every asset he has in a judgment against him. But if someone sues your corporation, only your business assets are in danger. Your personal assets – your house, your personal investments, your car, etc. – are safe. Of the many types of corporate structures, the limited liability corporation (LLC) is my favorite. It gives you the legal protection of a regular (C) corporation and the tax advantages of a subchapter S corporation. It’s very easy to create an LLC. And it’s inexpensive. Every year, more than 100,000 new businesses are incorporated in America. Isn’t it about time you had one of them? Look into it. Today.[Ed. Note. Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]