Whether you’re building a new business or building your net worth, having a good credit score is critical to meeting your financial goals. What many consumers may not know is that your FICO score, developed by the company, Fair Isaac, periodically changes not just due to your spending habits. Fair Isaac changes the formula used to calculate your FICO score every few years and a new version will start to get traction in 2020. You may see lenders start to adopt the new model called FICO 10 Suite.
Many lenders have “credit score” embedded into their own financial models, so the rollout takes time, but it’s important to know about these changes coming so you’re not caught by surprise. Even if your auto dealer is an early adopter, they’re not going to tell you, “Hey, we’re using FICO 10” when you go to buy a new car in 2020.
Ironically, like most things in life, the goal line gets moved just as soon as you’re about to cross it. Since the 2007 housing market crash, most consumers have been steadily working their way out of debt, and credit scores have improved. One report from Experian pegs the average score at over 700 in 2019. So with so many consumers with high credit scores, lenders need a better way to differentiate borrowers who on the surface all seem like good investments. Hence, FICO’s new model will take into account things like personal loans which have become very popular over the past few years in helping people consolidate credit card debt. This will now be a separate category and could negatively impact your score if you have a personal loan and still have high credit card balances.
Ultimately, the best way to beat FICO and lenders at their own game is to eliminate all debt – starting with credit card and car loans. Build your emergency fund so you don’t have to rely on credit cards when things go south like a job loss or health issue. And most important, keep pushing to create additional streams of income.
Read more about the FICO 2020 Credit Score Changes.
SMS, technically known as Short Message Service, and simply known as texting, is used by millions of mobile users each and every day to quickly communicate everything from dinner reservations and doctor appointments to letting a teen update their parents on their whereabouts. Big businesses like retail and your favorite restaurants use SMS marketing to alert you of sales and 10% off your next burrito. The beauty of SMS marketing is that it is now dirt cheap for even the smallest of businesses and the results can be just as impactful as the big guys.
If you run a business with less than 10 clients, you may be able to get away with texting each client a separate text message when you have some update about your business. But what we’re talking about is using mass SMS marketing to communicate your message with hundreds or even thousands of clients simultaneously – setting up autoresponders when someone joins your SMS list and being able to track it. This ultimately builds better engagement with customers, helping your business grow.
A recent report claimed that some mobile users check their phone unknowingly up to 80 times per day. While I’m certainly nowhere near that rate, that staggering fact does partially explain why text messages have an open rate in the high double-digits (70-80%) compared to emails that can sit unread in an inbox for days with an open rate below 20%.
So what businesses can benefit most from SMS marketing? Typically service businesses where you have recurring customers that need your service several times a year, or even every month. But even businesses that sell you a one-time large purchase, like an auto dealer, have found ways to continually engage you by text – think oil change reminders and offers to trade in your vehicle.
Here are our picks for small businesses that can increase customer engagement and grow their client base through the use of SMS marketing:
CPAs and Tax Preparers – This type of business has clients that include individuals and business owners. While most only have to worry about filing taxes once per year, there are a lot of tax tips that people often forget throughout the year. SMS marketing is a great way to send tax tips periodically.
Real Estate Wholesalers – There are a lot of real estate investors in almost every city looking for the next great property to rehab and flip. Wholesalers who want to quickly alert their real estate investors about a new property they have under contract can definitely benefit from the speed of SMS marketing.
Local Restaurants – If you own a local coffee shop or cupcake place, you want customers coming back at least several times a year. SMS marketing is a great way to promote discounts to customers that join your exclusive SMS mailing list.
Handyman – If you run a handyman business then you clearly know that most homeowners often forget or don’t have time to do basic maintenance on their homes throughout the year. Reminders to check smoke alarms, replace the HVAC air filters and more can all be sent as part of a recurring SMS marketing campaign. When homeowners see your texts, they’ll be more likely to call you to finally fix something else that’s been broken in their home for months.
Fitness Coaches and Personal Trainers – This is an easy one. Most people are not self-motivated to work out on a regular schedule. Blasting your clients text messages once per week is a constant way to keep them honest about their workout routines.
Tutors – This one most people don’t think about. Maybe you offer SAT prep services to a group of high school students in your community. A great way to keep them fresh in prep for exams is to send out a new math problem each week or maybe send them to a web page with a new set of problems to solve each month.
Massage Therapists – People who have experienced the benefits of regular massage tend to go back, but sometimes life gets busy. Monthly health reminders and wellness tips will keep your clients engaged and they will in turn remember to make an appointment with you.
Hair and Nails – The plight women go through to keep “their look” should not be lost on anyone. However, there is probably not a woman on the planet who hasn’t gone longer than they wanted to just due to life getting in the way, once again. Hairdressers and nail salons can use SMS marketing to promote their discounts regularly, which is usually enough incentive to get people back in the door.
Auto Mechanics – If you run a local auto shop, the list of SMS reminders you can send to your client base is almost endless. You can text everything from winterization reminders, to safe driving tips. When something really breaks, drivers will be more likely to use your shop.
There are many more types of businesses that can benefit from SMS marketing, but hopefully this spurs some thoughts on how you can use this powerful tool to stay top of mind in a busy, mobile-driven world.
You can start your own SMS campaigns for less than $20 per month which gives you the ability to send a few texts each month. More than once per week tends to get viewed as spam, so you want to be careful in your text marketing strategy.
If you’re ready to start SMS marketing, a great place to visit is TXTsigns.com to learn more.
There are lots of reasons why people start their own business, but most people fall into one of three categories:
If you're really lucky in life, you may find the perfect calling that meets all three reasons above, but for many, they'll have to pick which reason is most important. Ask any person who owns a local restaurant and they'll often tell you it not only consumes their life, but the lives of their entire family. Ask an artist if they think they'll ever become rich and most accept they're not doing it for the money. So before you start any business, you must first be honest with yourself and truly know the reason for doing so. Passion can turn into a grind if someone is paying you for something that must be produced at a certain time, under a certain cost. Most startup businesses will require you to put in way more than 40 hours/week to make them successful. If you fall into the first category and really want to generate more income, then there are certain things you must keep in mind.
The greatest disservice ever done to entrepreneurs was convincing them that they could start any profitable business with just a few thousand (if not, few hundred) dollars. We’ve seen the stories too many times, where someone has an idea, uses their savings, maybe borrows money from a few friends, and then it's off to Shark Tank where they tell their story about a million-dollar business in just a few years. The reality is that these stories do exist, but there are so many factors that go into what works and what doesn’t, and why so many small businesses experience the exact opposite of these stories.
Is It Good Enough?
I’ve been guilty of the syndrome of taking too long to build an idea, then going to market with a product or service nobody wants, while trying to do it under-capitalized. It is the trifecta of terrible entrepreneurship. I simply refer to it as “2 Years and $2,000” as that's the amount of time and money I spent on one idea that really was a hobby.
If your primary goal for starting a business is Reason #1, then you must be laser-focused on "creating" new money, while not draining your soul and your wallet, leading to more expenses. Don’t fall into the trap of trying to build out the most unbelievable product or service, trying to get everything perfect. It’s very easy to fool yourself into thinking that you have to have a nice logo, cool business name, and perfect product for people to buy from you. Going down this path leads to months and months of "ideating," designing, refinement, while no money is coming in. Yet money and time is going out. Before you know it, two years have gone by and you haven’t made a cent.
Does Anybody Care?
If you want to make money quickly, pick a product or service that people will pay for that doesn’t need any frills. I’m always amazed that even in our digital age, some of the best plumbers, lawn care services, and other owners of necessary businesses can make six figures and not have a website or even a business card. When you offer something people need and do good work, the referrals and subsequent business just comes. Don’t take two years trying to invent the next great thing, when you’re primary goal is to generate income and hopefully invest some of that money into passive vehicles.
My wife often jokes that I wasn’t meant for this world as I’m that person that always likes the unpopular stuff. I’ve lost count how many times I’ve liked a new restaurant or product from a grocery store that went out of business or stopped being sold. Because of this, I’ve found myself coming up with ideas that I think are great but don’t get others nearly as excited. Being an entrepreneur with an engineer's mind is tough. You are trying to build a new product while teaching people why it’s an innovation that people should get excited about. This method is another time and money trap for building wealth when the likelihood of being the next Mark Zuckerberg is slim-to-none. Pick a product or service that people already understand and you can instantly work on targeting a well-defined audience who have already expressed a desire for that product. This is not to say you shouldn’t dream or come up with new ideas. If that truly makes you happy, then you should do that – just note that may mean not reaching your original financial goals as early as you would like (or ever).
Can You Market It?
Another piece of advice also hits close to home for me when building a business. I remember growing up in the 80’s seeing those Honda commercials where they said it was the car that sells itself. I often thought that many of my business ideas would result in products that just sold themselves. As I got older, I realized that I could probably find the cure for cancer and still die broke if I couldn’t find a way to market it. Having a sales and marketing budget is critical when trying to launch a new business. There have been so many scams not just in your neighborhood, but even on Wall St. (think WeWork) that people are naturally skeptical. Marketing is critical to getting your business out there; don't fool yourself into thinking otherwise. If you don’t have both the time and money, then you must seriously consider whether you’re ready to go into business or are you better off getting a second job and pouring all that money into investments. I heard one entrepreneur say that he has many ideas each week, but they're just passing thoughts; he won't start any venture unless he's willing to spend the next 3-5 years putting a real effort into making it work. Most people give up after a year and are lucky if they make it to year two.
Who Do You Know?
One last thing you should consider in building your business is understanding the size of your network. The smaller your network, the more time and money you will need to market it. Many of those amazing success stories you hear come from entrepreneurs that had a little help from a strong network of people that could help buy, promote, or sell their product. This is why it is sometimes easier for children of celebrities to start their own clothing line, or cosmetics brand - they have access to a network that gives them an instant boost. Without this, you’re spending like crazy on everything from advertisements to reviews and never hitting critical mass.
There is no one exact way to reach your financial dreams, so consider what works best for you. If building a side business is a means to an end, make sure you define the parameters such that it is truly a side business and not a pit of money, time, and energy for the next ten years. There's nothing wrong with keeping something small for some extra funds each month. Alternatively, if you want to be on Shark Tank, that's great too, just understand the sacrifices that will need to be made. A successful venture requires a lot of thought and smart planning, and sometimes you realize maybe just having a hobby is okay too.
I owe a great deal of gratitude to my father, for not just showing me “dad” things like how to throw a football, but teaching me about the value of money. He gave me my first book about investing. It was a brochure-shaped paperback from The Wall Street Journal called, Guide to Understanding Personal Finance and a second book called, Guide to Understanding Money & Markets. I have still made plenty of financial mistakes in my life, and still continue to do so on occasion, but it probably would have been a lot worse without his guidance.
In college, while interning during the summers, I learned about DRIPs - Dividend ReInvestment Plans that you could open directly through Fortune 500 companies. My father was a big fan of DRIPs and how the recurring reinvestment into the same value stocks could growth your wealth substantially over time. There was even a newsletter you could subscribe to called the DRIP Investor - yes, a physical newsletter that came in the mail! By the time I graduated college, I thought I was an investing master and waltzed into a Charles Schwab office to open my first brokerage account. I no longer wanted to just do DRIPs. I wanted to trade all stocks and even try options. I don’t even remember how much I opened the account with, but it was the bare minimum I could scrape together.
My “broker” commended me on taking such initiative at a young age. I don’t think I ever heard from him again, probably because my balance was so low, it was not worth trying to offer me any equities to buy.
Today, I see lots of millenials interested in financial independence through stock trading and bitcoin. I think it’s great to see, and I firmly believe I can learn just as much from the old brokers as I can from the “new guys and gals” coming up. In fact, I was late to the Robinhood game and the idea of commission free trading. I was a long-term E-Trade customer when they first came out. While Schwab and E-Trade are still around, Robinhood has more customers than both of these firms. Why? Commission free trading of course!
When I started out, you would speak to a broker to “place” your trade. When I moved to E-Trade I thought that was a game changer - being able to buy and sell on my computer without an intermediary. Commissions were around the $10 range and have come down to around $5 today. But even at that level, it can be a killer for young investors. Hence, why Robinhood and mobile apps are the future.
Think of it this way. Everyone knows which stocks have a really good chance of going up in value. I can put money on Google tomorrow at around $1,193 per share and have a pretty good chance that in 2-3 years it will definitely be worth more. But most investors, young and old can’t afford even a single share of Google stock. A commission is nothing more than a fee for being able to acquire a share of stock from the company through a given brokerage. Many companies allow you to buy stock directly, but the process is not nearly as convenient as going through a broker where you can buy almost any stock instantaneously. So the brokerage is basically charging you a convenience fee to use their system for purchasing your piece of Google. Being charged $5 to buy one share of Google is only 0.4% of the price. That’s less than 1%. But in the real world, the average investor is buying stocks that are much lower. On Robinhood, the most popular bought stocks are most likely to be less than $50 per share. A traditional brokerage will charge the same commission regardless of the price of the stock. So a $5 commission on a single share of say AMD stock at $32 a share is 15%. Yes, you just paid $5 to buy one share of AMD stock. So even if that stock never moves, you are 15% in the hole because of your out of pocket cost. Oh, and when you sell, there is a commission for that too. So even if you decided to hold AMD for a while, the stock would have to go to $37 to make your $5 back. Having your portfolio growth 5-10% in a year is considered a decent year. With your purchase of one share of AMD, you’re needing a gain of 3x.
A brokerage that offers commission free trading allows investors to try their hand at owning equities with little risk. You simply need enough money to buy the price of one share and you’re instantly a stockholder of that company. If the stock moves even a few percentage points, you’re profitable. The bigger advantage is when you add to your position over time. If you slowly build up a portfolio, you would be paying $5 many times over. In several years you could easily rack up hundred if not thousands of dollars in commission fees. That money could have gone to buying more stock. This makes the argument for apps like Robinhood, Stockpile, and M1 Finance really compelling.
While there is always room for people to abuse the system, I think there is more benefits to these new platforms than downside. Consistently investing over-time and using dollar cost averaging is a perfect way to use platforms with zero commissions (i.e. they’re not designed for day trading). While you may not get a full selection of stocks, they offer access to all the big names that you should be looking at anyway. If you’re looking for obscure equities and/or foreign stocks all the time, then you need to be on a more advanced trading platform and pay more advanced trading fees.
With the barrier to stock trading so low nowadays there is no reason not to try and build your wealth plan. You don’t have to be married to any one platform either. Most people I know have several brokerage accounts for different purposes - even a mix of traditional and ebrokers. Some of these platforms will even give you a free share when you sign up. Check our blog sidebar for details.
Welcome to StepChange (StpChg). A blog about financial empowerment. Get insights about how to start a business, entrepreneurship, investing, real estate, financial literacy, and more.