Variable vs fixed costs

When we are managing our budget, no matter if it is a business or personal life, we need to realize there is a difference between types of costs.  I am talking about variable versus fixed costs.  Variable cost can be defined as a cost that varies with the level of output [reference].  An example of this is ingredients in a product.  As the volume goes up and you purchase more ingredients, you would expect the cost of those ingredients to decrease.  These would be considered variable costs.  Fixed cost can be defined as business costs, such as rent, that are constant whatever the quantity of goods and services produced [reference].  An example of this is rent on a building you are working out of.

So why is it important to understand both fixed and variable costs AND understand the difference?  First of all, these terms apply both to the business world and your personal life.  For example, at home you should understand the many types of expenses you are responsible for.  If you are paying a mortgage, car payment, and student loans- you will know these are fixed costs because the payment does not change.  You can pay more and should pay more, but this is completely under your control.  I would say gas for your car, food for your stomach, and electric for your home are more of a variable cost.  Both fixed and variable costs need to be monitored, but I would say we should pay closer attention to the variable costs.

The reason I say variable costs should be monitored more closely is because we need to make sure we are keeping them under control.  As our usage goes up, the cost will most likely go up.  When it gets colder out, you may be paying a higher gas/electric bill depending on what type of heat your house generates.  When it heats up outside, you may pay much more in electric for your air conditioning.  As you use more data on your phone, you phone service provider could raise your rates.  It does not seem like a significant amount in the short-term, but it does add up in the long-term.  $5 per month does not seem like a lot, but when you multiply it across the course of a year, it is $60.  If this happens with three service providers, you are at $180 extra for the year.  

These are just a few thoughts on monitoring fixed and variable costs.  The more information we gain and more knowledge we have on financials, the better off we are going to be because we will be making better decisions.  Good Luck!

Risk versus reward analysis

Whenever I have a decision to make, I think risk versus reward.  The best way for me to illustrate my thought-process is to show this table below.

Here is the breakdown for each sector:

  • A = Low risk / big reward
  • B = High risk / Small reward
  • C = Low risk / Small reward
  • D = High risk / Small reward

We want to be in the A quadrant because it is low risk / big reward.  Not all decisions in life will be black & white.  We will not have opportunities that are only in quadrant A.  Most likely, we will be faced with opportunities in the other three quadrants too.  Those are the quadrants that require more thought-process.

This reward versus risk analysis can be used to help prioritize your projects in life too.  There is limited time in the day, so we will need to prioritize which projects we put resources towards.  If you fill out your projects into each of the four quadrants, you can better understand where each project exists in terms of risk versus reward.  We are obviously looking for the biggest rewards with virtually none of the risk.  

A quick example to further my point here- my father and I just purchased a piece of property.  The piece of property was purchased for 1/10th the value it is worth.  The plan is to construct a building on the property for our business.  If all fails and we did not receive approvals for the building, we do still have a piece of land worth 10x what we purchased it for.  I find this low risk / big reward (quadrant A).  If we paid face value for the land, meaning we paid exactly what it was worth- I would say the risk is a little bit higher.  We need to make sure we are looking at everything from multiple angles.  

Relating level to pay, experience, and responsibility

Lately, I have been thinking about how pay, experience, responsibility, and level relate to one another.  I have also been thinking about- how education, early career, mid level, and senior level would look in a pyramid.  I created a pyramid to show this.  I also created a table to show where pay, experience, and responsibility falls in each stage of a person’s career.

Education is the foundation of our careers for the most part, which is why it is at the base of the pyramid.  The next level is titled, early career and this is typically an entry level position.  Between being a student and entry level professional, your pay, experience, and responsibility will all be very low.  It is when you get up into the mid level where pay, experience, and responsibility increase significantly.  At this point, you will have 5-10 years of experience, be getting significantly more than entry level, and have much more responsibility.  Not all career paths are the same.  Not all people work at the same pace towards a promotion.  I give it 5-10 years on average for most people.  You could be faster or slower.

The senior level is an interesting one where not all people get to this level.  Your responsibility level will be at the highest it could be.  Your pay should also be high along with experience.  The pyramid shape is unique and useful to help remember a few things.  For starters, the broader the section of the pyramid, the more people exist in that area.  As you work upwards, there are going to be less mid to senior level people required.  These are the leaders, so you would and should expect this.  You need to be competitive to reach these levels and remember- nobody is going to hand it to you.

We all want to be at the top, but are we all going to do what it takes to get there?  Most likely not!  If you really want to be at the senior level, then you will need to focus and continue driving yourself day-in and day-out.  You need to have enough experience to make sure you are worth your company’s time.  A senior leader will need to be well-versed in many areas. A lot of times, these people have worked in cross-functional groups across organizations.  Additionally, they should be able to create direction and motivate others to work hard to achieve similar goals.  I would like to get to a senior level, which is why I am trying very hard to gain as much experience as possible.  I also am trying to figure out the best ways to contribute because this is very important.  We do not have jobs because our company likes us.  We have jobs because we provide a service or some other type of value to our company.

Getting the most of your day

This morning I woke up and went to the gym at 5:30am, which is a late start for me.  I typically am at the gym at 5am.  I spent roughly one-hour working on my legs.  Afterwards, I went home and got changed into my shop clothes.  My dad picked me up and we went to work at our machine shop for four hours.  We worked outside in 30F temperatures, which is slightly colder than I prefer, so we did not want to stay too long.  I also wanted to get home to hang out with my wife and son, since I have not been able to spend time with both of them in a while.  We have been very busy lately and I do not see this changing anytime soon.

For me, most of my progress is made earlier on in the day.  Around 1pm-2pm, my brain starts slowing down.  This is when I need a quick coffee to get me back up and running.  I typically do ‘big rocks first‘ as Stephen Covey prefers it.

A killer of progress is procrastination and I will do anything to avoid this from happening.  Once you get into a procrastinating habit, it will be very difficult to get out of it.  From the start, make sure you are proactive and getting done the things you need to for maximum impact.  We are paid because we add value to the cause.  We are not paid to stand around and look pretty, unless looking pretty is adding value to the cause.  The cause is your business’s, company’s, organization’s, etc… goals.  Most companies are looking for more sales (larger top-line sales).  We also need to keep in mind the bottom-line.  

You are going to get the most out of your day by doing value-add activities.  Just because you are doing a ton of activities, does not mean they make sense for your goals.  As an example, you are trying to increase sales for your business.  You decide to work really-really hard on organizing your desk and making sure your office is clean.  If your customers never see your desk/office, then how is this helping you gain sales and reach your objectives?  This may be a poor example, but I think you get the point.  Prioritization and alignment are critical to the success of your business.  You need both to make it work.

Preparing for 2019

It is near the end of 2018, which tells me I need to prepare for 2019.  One of the ways I do this is by reviewing my 5-year plan.  As mentioned before, I split my 5-year plan into several buckets (i.e. corporate career, personal business, personal life, and school).  I am looking to see if I’ve met my 2018 goals.  If I did meet my 2018 goals, then I will continue forward with 2019 goals as planned.  If I did not meet my 2018 goals, then I will adjust my 2019 goals accordingly.  It is crucial to be realistic when setting our goals.

It is a poor decision to state- I will start working on my goals January 1st.  We need to make sure we are proactively working towards achieving our goals from the second we create them.  Procrastination truly is a wrecking ball demolishing our hopes and dreams.  Each day wasted further delays your future successes.  Nobody is going to pat you on the shoulder and provide you with your dreams for free.  You need to get out there and take the bull by its horns.  You may not be fully capable of achieving your goals today, but today you can start filling your toolbox with the tools that will give you the capability to achieve your goals in the future.

In 2018, I did not hit all my targets and can attribute some of this to some activities outside my control.  I do not use this as an excuse, especially because I hate excuses.  It gives me more motivation to try harder in 2019.  There are times when events do occur that are outside of your control.  It’s really how you handle those uncontrollable events that really matters.  Make the best decisions you can with the information you have.  Gather information/data to better prepare ourselves for the future.  This is a strategy we use at Civil Accomplishment to further progress ourselves.  Another strategy is- learn from out mistakes.  

The point of this blog is- do not wait until 2018 is over to start planning for 2019.  As we can see, each year moves incredibly fast.  The world does not wait for anyone and continues forward.  We need to manage our time wisely and prioritize.  Focus on the bigger projects and make sure you are getting noticed for your good/great work.  I’ve made the mistake in my past to stay quiet and not make noise.  I’ve changed this and have been seeing some dramatic positive changes.  People are noticing my work and really appreciating it.  This will get me to the next level.  We all want to move up in the world.  It will not happen overnight and requires effort.

High school memories

On my one-hour commute home from work this evening, I began thinking about high school.  Each of my classes required one textbook and a notebook for note taking.  I had about ten minutes to get from class to class with very little time to stop at my locker.  I had to plan out my day accordingly because I did not want to carry all my books with me all day long.  I had to plan it out, so I could stop at my locker several times each day.  My goal was to carry as few books as possible throughout the day.  In each of my classes, I had to listen to the teacher for 45 minutes and it was not always easy.

I did love high school, but also realize there were many challenges while I was in high school.  There are academic pressures and social pressures that constantly weighed heavily on me.  At each stage of our lives, we have pressures that weigh heavily on us and we just need to deal with them.  Some of the pressures I am seeing today involve my career, business, family, and financial situation to name a few.  Each of these are managed by me and I hold myself 100% responsible for each.  If something does not go the way I want it to go, it typically comes back to a decision I made at some point in my life.  Too many people do not hold themselves accountable for their actions and that is a huge mistake!

Besides the challenges in high school, there were more positives that outweigh the negatives.  For example, friends, riding BMX, and playing music in a rock band.  There were also the weekend ski trips, family vacations, and weekend hangouts with friends.  Similarly, today I get to hangout with my family, go out to dinner whenever we feel like it, and also enjoy the company of our friends.  We would be missing out a big piece of life without the positives.  We need to make sure we have future events planned.  These events are things we would look forward to and keep us motivated.

Fortunately, still today I hang out with my best friends from high school.  We meet up less frequently, but still have a ton of fun.  We also all have families, so there are many more of us to contribute to the fun.  We are a fortunate bunch and have all done very well.  I am proud of my friends and their successes because they are great people.  Friends do have such a large impact on you and the road that lies ahead of you.  Make sure you pick great friends from a very young age and keep them around.

Transparency and accountability

Lately, I have been reading this book called “Talk Like Ted” by Carmine Gallo.  It has been phenomenal and I recommend this book to everyone who wants to become a better presenter.

Now, let’s talk about my topic – transparency and accountability.  Have you ever stopped trusting someone because they lied to you.  Have you ever gained trust in this individual again?  If you did, I am certain it took you a while to confide in that person again.  It is much easier to lose trust than gain trust.  I believe trust and transparency go hand in hand.  You need to be open and honest to show others they can trust you.  Similarly, if you do fail, you need to hold yourself responsible for our mistakes.  Being accountable is part of the path to success, even if you do not like it.

My point is this- we need to be transparent and accountable to be good leaders.  If you look at different organizations, the majority of the employees say transparency is of utmost importance to them.  This means, if they think their CEO is not being completely honest, then they are not going to be happy-campers.  I completely agree!  

This topic comes to mind anytime I deal with someone who I feel is not being completely honest with me.  I’ve dealt with suppliers who give me 101 excuses of why we are seeing issues with the materials they are providing us.  Most of the time it is never their fault and it is because of some freak incident they could not control.  If they were just upfront and honest with me, I would respect them more.  I would not be looking outside at another supplier.  Similarly, if someone in my personal life is lying to me, I typically stop hanging around them as frequently.  I want honest people in my life as we all do.  

Someone may say, “isn’t it harmless for someone to fib?”  A fib could be harmless or it could be harmful.  If I am relying on information to make decisions and the information is false, then it is not good information.  False information could lead me to a poor decision.  A poor decision could cost me a substantial price.  If someone knew the information is false and let me believe it is true, then this is very-very bad.  I have no time for people who would let this happen.  

If there was more honesty in this world, it would be a better place.  Fortunately, I do not lie and do not contribute to false (fake news) information going around.  Please consider the next time you or someone else provides false information.  This false information could really impact someone else’s decision.

School of thought – success

School of thought is described by Wikipedia as the perspective of a group of people who share common characteristics of opinion or outlook of a philosophydisciplinebeliefsocial movementeconomicscultural movement, or art movement.  Many of will have different ideas of what success is and how to achieve success.  My parents have always told me to work hard and you will be successful.  Although this is true for the most part, there are some other things we need to keep in mind.  Of course, we need to work hard to achieve our goals.  However, we need to be smart about it because we can end up running on a gerbil wheel without getting anywhere, if that makes sense.

Before I move forward in this blog, I need to emphasize everyone’s path to success will be different.  Depending on your final goal and your current situation, people are simply going to find different ways of getting there.  The important piece is getting there and getting there in a timely manner.

In my earlier years, I attended school and was an average student.  I tried hard or at least I thought I tried hard.  Part of this was not having the effective methods of studying the right way.  Just because you study night and day, does not mean you will be the valedictorian.  As previously mentioned in a blog, some things just come more natural to some people.  I guess you would call this raw intelligence.  As time went by in life, I observed others who were successful than myself.  I also observed others who were less successful.  I learned from the successes of the successful people and the failures of the not-successful people.

As more time passed by, I’ve learned more and more.  Each day I used to gain more experience and find my way to my goals.  A challenging part of it all was to identify what my goals were.  This discussion could be a whole other blog, so I won’t dive too deep into this right now.  After college, I took on a career as a chemist.  I learned more in this role.  I took on a role in maintenance.  I took on a role as a packaging engineer.  I took on a role as a supply quality leader.  I continued to learn from each experience making myself better than my past-self.

When it comes to school of thought and success- I am one who believes you need to build your talents and abilities from experiences.  Nothing is going to be handed to you for free.  You need to put time in and work hard to achieve your goals.  At the end of the day, by working hard for your successes, you are going to feel much better about yourself than if it was all just handed to you.  We must manage our expectations and know it will take time.  Anything good is worth waiting for (as they say).

I am building out a plan to transition into my business full time by 2022-2025.  I still have not fine tuned it to the exact year, but I am getting there.  I am currently growing my business to a point where it could support myself and my business partner.  These things do take time and we have been at it for over 10 years now.  We have gained many successes from our business.  We have been able to do many awesome things because our business was a great support for us financially.  I plan on writing a little bit more in the next coming weeks/months about my business development.  I am very excited about it and know great things will come.

My own business (goals)

Working in the corporate world has been a great experience for me!  I have been able to interact with a wide range of people in different cross-functional groups.  I have been trained in a variety of areas, which has helped me increase my knowledge and expertise in those respective areas.  I have also been given the opportunity to present frequently, which has helped me improve my presentation skills.  All of these great perks were provided to me with the added bonus of getting paid top dollar for my services.  Working for a corporate office has also allowed me to network with a large amount of people.  These people have taught me so much and I am very appreciative.

On the flip side, I do not want to work for the corporate world for the rest of my life.  My father and I have worked very hard for over 10 years on our own business.  This business is where my true passions are because I love building equipment.  I also love the fact that my family’s name is the company’s brand.  Right now my efforts are being divided between my career in the corporate world and my career with my own business.  In several years when I am debt free, saved a significant amount of money, and have grown our business large enough, I will be taking on the business full time.  At that point, I will be able to better leverage myself in the business and gain even more business.

Right now I am working on growing the business with my father.  We are strategically planning our every move to bring on new business.  We are focused on building strong relationships with our clients.  We are also focused on bringing on new customers to grow our annual sales.  I have stressed the importance of continuous activity day after day, to make sure my father and I are keeping the business top of mind.  Since I have been in school the past couple of years while working in the corporate world, the business has suffered.  This is the first year I did not have to focus on school in several years and my additional efforts into the business are proving great results.

At the latest, by 2025 I will be working full time in my own business with my father.  I see my father joining the business much sooner than this due to several other factors I will not get into right now.  I am super excited to get this business moving.  In 2019 and 2020, we are working very hard to get the business to that next level.  It is possible that I can move into the business full time in 2021, but would want to wait another year or so to make sure the risk is extremely low of failure.  I do think by mid-2020, I should be fully confident or not in moving 100% of my efforts to the business.  At this point, we should be able to tell whether the business is solid enough to support both my father and I full time.  

A few reasons I would like to join the business full time are as follows:

  • No travel (currently traveling quite a bit for my corporate job)
  • Work near my home (within 5 miles)
  • Potential for better pay
  • More flexibility on hours
  • I would be my own boss
  • No politics (corporate world is very political)
  • Don’t need to watch what I say
  • Work with my dad
  • Respect in the community

The list of reasons can go on and on.  I am very focused on reaching this goal and will not give up.  I am doing this intelligently and with cleverness.  I know I cannot just jeopardize everything I’ve earned thus far.  I am much smarter than that.

The importance of health

It is incredibly challenging to get things done when you are not feeling your best.  It could be a runny nose, congestion, diarrhea, vomiting, fever, sore throat, head ache, or something else.  When I am not feeling 100% healthy, I struggle to perform.  This is why it is incredibly important to eat healthy, get enough sleep, exercise regularly, and stay emotionally stable.  I have certain expectations that I want to meet by certain dates.  I do not typically build in extra time for health issues because I do not normally get sick.  Unfortunately, I’ve been feeling under the weather for a few days and I am having a hard time getting things done.

According to WEBMD, 22 million school days are lost annually in the United States due to the common cold.  WEBMD also says, children have about 6 to 10 colds per year.  It is possible children do acquire the common cold more often than most adults, but adults do get sick too.  Similarly to children, adults are also missing days of school/work.  Since we know illness damages performance, we should all be very interested in staying healthy.  Additionally to the comments I made earlier on how to stay healthy (i.e. eat healthy, get enough sleep, exercise regularly, and stay emotionally stable), here are 6 more tips from WEBMD.

  • Wash your hands
  • Use alcohol-based hand sanitizer
  • Avoid getting close to people who are sick
  • Keep your surroundings clean
  • Keep up a healthy lifestyle
  • Get flu shot

I am certain these are not the only things you can do to avoid illness, but this is a good start.  I would emphasize washing your hands and using alcohol-based hand sanitizers as one of the better tips for staying healthy.  I guess I would also say, avoid getting close to people who are sick is another good tip.  

Of course, we want to achieve our goals and produce results.  My point in today’s blog is- it can be extremely difficult to produce results when you are feeling crappy.  The physical fatigue from fighting illness over several days proves to be too much for me.  There is a point in my sick-cycle where I need to give up and feel as if I cannot push anymore.  I also have to skip out on any fun activities because I do not want to get anyone else sick.  This topic came to mind because I do not feel great at the moment and it is the season of colds and runny noses.  Bundle up this year and try to stay healthy!

No substitution for experience

It simply annoys me when someone did not put the time in, but expects the same results as someone who did put the time in.  I understand we all learn at different rates.  Some people are naturally good at certain things.  Some people pick up things faster than others.  These are all true and very-real scenarios, but you still need to put the time in.  There is no substitution for experience.  Much of what I know today was learned from experience.  Another portion was learned from books.  I suppose you could argue everything is learned from experience, if you consider reading and studying from books an experience.

As you may notice, my blogs are somewhat random, but I do my best to focus on ‘Civil Accomplishment’ type topics such as money management, goal setting, and self-improvement.  One of the things I figured out along the way was networking is extremely important.  As you climb the ladder to success, you will find people become more and more important for you to get to the next level.  A key person to help you along the way is a mentor.  Mentor is defined by as an experienced and trusted adviser.  I have had several mentors who have helped me out.  Do not expect them to provide you an easy promotion, but expect them to vouch for you (if you are worthy).

Another key person in your career is your manager.  It incredibly important to have a good relationship with your manager and be completely transparent.  This transparency should flow both ways and not just upwards (you to him/her).  Good managers will allow you to share your work with the high-ups.  Good managers will praise you and give you constructive feedback.  A good manager does not hold you back, even if it means letting you go to another greater opportunity.

Peers are also important to your career.  You do not have to be liked by everyone, but the majority of people should respect you.  Getting coffee or lunch with a peer, manager, mentor, or other co-workers can be a nice way to build a relationship.  

One of the big pieces to growing in my career was what I call random meetings with miscellaneous people.  Nobody ever told me- go setup a meeting with ‘x, y, x’ to understand their perspective.  This is something I figured out by myself because I realized I had some gaps.  For example, I did not always know what procurement did or supply chain.  I had some ideas, but did not have the whole story behind what they did.  Understanding what cross-functional partners do will help you better leverage them and build a better relationship with them.  If I went to procurement with some wild request to solve quality issues for me, they would not be very happy with me.  I would most likely need to talk with the quality department for this request.

By having random meetings with miscellaneous people, building relationships with managers, mentors, peers, and co-workers, and working in various departments in the field, I have learned a significant amount.  When someone comes in fresh with no experience and no time put in, and expects the world, this simply annoys me.  We all need to plan ahead with direction that makes sense for our personal goals.  We cannot expect results immediately if we have not put any effort in.  Begin putting the effort in as quickly as you can for faster returns on that investment.  This is very similar to a 401K or any other investment you make.  Your career experiences are an investment for your career.

Justifying big purchases

Big purchases are a big deal!  Whenever you purchase a car, home, boat, or any other big purchase, you should really spend sometime thinking about it.  Think about a mortgage on a house or a car loan.  You will need to make monthly payments on these loans for upwards of 10, 15, or 30 years.  You could also be paying upwards of ten-thousand, fifteen-thousand, or thirty-thousand dollars in just interest.  All too often, the salesperson will push you to buy immediately without much thought because he/she will say, “why say no when it feels so good to say yes”.

Recently, I’ve been looking at Tesla Electric Cars because my friend just purchased one and I love it.  I could trade-in my Jeep for $15,000-$18,000 and if I purchase the Tesla before 2019, will receive a $7,500 tax credit.  At the end of the day, I cannot justify this purchase even with the money I would save for gas.  As I look at my long-term goals of quickly paying off my mortgage and getting to 0% debt by 2023, this purchase of a Tesla would only delay my financial plans.  It is unfortunate, but I must stay discipline even if it is very difficult.

It has been a while since I reflected on the Civil Accomplishment strategy, which are as follows:

  • Share useful information to those interested in improving their financial situation.
  • Gather information/data to better prepare ourselves for the future.
  • Understand our goals and build a plan to reach them in a timely manner.
  • Learn from our mistakes.
  • Celebrate our successes.

I do feel my analysis of purchasing a Tesla remained true to each of these points in someway.  Specifically, gathering information/data to better prepare ourselves for the future and understanding our goals and building a plan to reach them in a timely manner.  I understand my goals, which helps me create direction on whether or not I should purchase a Tesla, which can cost upwards of $80K.

Think about some of the big purchases you may want to make and try to review them 360.  Don’t just push the evaluation to make it come-out favorable to what your initial wants are.  Try and really evaluate every angle to make sure it is the right decision.  Too often, people ignore certain aspects to make the decision they wanted from the start.  I try to make decisions unbiasedly and based on purely facts.  Now and then, emotions may get in the way.  We should try and eliminate as much of this as possible.