My Frugal Miser - Looking Back at my 2010 Goals

It's hard to believe this is it. 2010 will be over in a few hours. For me it was a remarkably transitional year. I was substantially "self-employed" for the year as nearly all my income either came from rental properties or mystery shopping. Even though I did not earn as much as I did in the corporate job I left in 2009, I still made some progress.

I had 5 big goals for 2010:

1. Lose 26 pounds. This one I failed miserably. In fact, I've gained a few pounds this year.
2. Increase my net worth by $25,000. I underestimated my ability here as my net worth increased by more than twice that. A big part of this was thanks to the investment performance of my two retirement accounts, but I also managed to pay off more than $25,000 worth of debt in 2010.
   
3. Stick to a budget in key areas including food, gas and entertainment. I didn't do too bad with my budget. My goal was to spend less than $5 per day on food and I actually spent $4.98 per day ($1,816.21). For gas, I wanted to spend less than $125 per month. I'm elated to report that I also met this goal by spending $1431.86 on gas in 2010 ($119.32 per month). For entertainment, I spent $1,793.35. I didn't set a specific goal, so I can't measure this one easily. In 2009 I won a lot of money on two separate gambling trips, so I actually *made* money instead of spending money on entertainment. But, in 2008 my total spending on entertainment was $6,548.66 (over $2,500 on alcohol alone!), so I think I did okay this year.
4. Lose the Bimmer. That was easy. I ended up selling the car in the last week of 2009.
5. Consider moving. Well, I considered it. It's on hold for now. I savor the thought of bicycling along the boardwalk in Tampa every morning, living a carefree life. However, this will wait. My focus now is on opening my restaurant and making it a huge success.

Update on Opening the Restaurant

We're making good progress on getting the restaurant open. It's a fairly large space with seating for over 200 in 3 separate dining areas. The last tenant skipped out on the landlord so there's quite a bit of cleaning to do. Before we can get our business license the Health Department has to give us the okay to open. Before they will let us open we have to have hot water. Before the gas can be turned on to heat the water and power the cooking equipment we have to get approval from the city inspector. There were a few small leaks in the gas line that have to be repaired first.

Every day we make quantifiable progress. Yesterday, for example, we approved our corporate logo and ordered our outdoor signage. Today we hope to have the gas lines repaired and to get the okay from the city to turn on the gas.

We are trying to open on January 17th.

A Week in the Life of a Mystery Shopper

December 19th - December 25th...

I am now a very part-time mystery shopper. There's so much to do to get the restaurant open. Last week I shopped two high-end hotels. I earned $100 in fees and $946 in reimbursements.

Both hotels were in Atlanta and were for the same company. I really enjoy these shops and hope to continue doing them once I can start taking days off from the restaurant.

This week I probably won't do any shopping... maybe a shop or two if there's a bonus. I'll be analyzing my total 2010 mystery shopping results this week and will report that soon.

I'm Buying Another Rental Property

As if I didn't have enough projects going on right now, add to that another condo I am purchasing. This was a strategic purchase: a current tenant of mine wants to split up with her boyfriend. The boyfriend is someone I have known for more than 10 years, and drama aside, I'd love to help him out and make a little money while doing it.

I'm buying a small condo for... drumroll, please... $11,000. That's not a typo. It's less than 800 square feet with one bedroom, one bathroom, a decent sized living room and small kitchen. It's also not in a very desirable area, but it's not in the ghetto, either. Would I live there? Maybe not - but then again, if I was single I might. My partner would leave me if I suggested we move there, if that gives you an idea of the area.

I don't have $11,000 sitting in a bank account so I will access funds some other way. My bank offers a Simplified Line of Credit at 11.74%, plus a 3% fee to access the funds. That's not cheap, but it's uncollateralized and easy to access. Besides, I would pay it back in a matter of months.

I love a bargain. The condo was listed at $17,000 and last sold for $28,000 in 2004. The owner moved out several months ago and just wants to rid herself of it and the monthly association dues. I'm happy to oblige.

How Much Does it Cost to Open a Restaurant?

Our investor was generous to take a chance on our restaurant, but even with her funds, we have to keep an eye on our spending.

Our pre-opening budget is $50,000. The restaurant lease included a substantial amount of equipment but there is still a lot we need. For example, there is no range ($5,000), refrigerated case for cold vegetables and desserts ($1,500), plates, pots, pans or utensils (who knows how much), etc. Most of the inside of the restaurant is brick, but we do have to paint some walls to remove the 15 foot murals which were associated with the theme of our predecessor.

Our space is huge - about 4,000 square feet. Besides the full service kitchen, there are two main dining rooms and a bar from a bygone era (we won't be serving alcohol). There's also a second floor which covers half the area of the restaurant and is semi-exposed to the main floor. It features private dining for groups of 50, our office and another room which we are thinking about using as an employee lounge.

My business partner and I are "accruing" our salary until we see how much money is left in our budget. We have agreed to pay ourselves $500 per week during pre-opening, $1,000 per week for eight weeks after we open, and then a fluctuating salary based on cash flow.

So how much does it cost to open a restaurant? We're making it happen with $50,000, but that's just to get us to opening day. If business starts out slow, we have some additional capital to fall back on...but not much. To keep our costs low we are doing most of the grunt work ourselves. For example, I'm having a great time learning how to use a pressure washer to tackle build-up behind the equipment. Some of our furniture is mis-matched, but in a restaurant with nearly 200 seats and three dining areas, it won't be as noticeable. Still, an extra $50,000 would easily be spent if we had it.

Our goal is to be open on January 17th.

Putting the Rest of My Life on Auto-Pilot

Most of my friends and family chuckled when I told them I was opening a restaurant. Not because they thought it was funny but rather because I'm the guy that's always working on a new project. Guess it's the ADD in me rearing its ugly face. It's more than that, though. I'm just not a lazy person - I have to keep pushing myself day after day or I get bored.

The secret for me is being able to automate my life as much as I can. There's no way I could own and operate a restaurant, manage 7+ rental properties (more about that "+" later), write a blog, mystery shop, and deal with all the other responsibilities I have.

Here's how I do it.

Rental Properties

• The rental properties have the most potential to require my time, so I've worked hard to simplify things: Of my 7 leases, 1 still has 5+ years on its 7 year lease, 1 runs through the middle of 2013, 1 just did an early renewal for a year, and 2 just started on a 1 year lease. In fact, I only have to deal with one renewal in all of 2011.
• I've generally invested in my properties to keep them in solid condition, so I don't expect many surprises as far as maintenance goes.
• When an issue does arise, I have a short list of contractors I am loyal to. Since they know me and we trust each other, they will do the work without me being present and send me a bill.

Mystery Shopping

• I'll be very selective with my shops, particularly at first. I seriously doubt I'll do any restaurant shops since I'll be around food all day. But I'll probably do some gas stations (I'll be driving a lot). And, when I do start taking days off again (hopefully after 2-3 months I'll be able to work 5-6 days a week instead of all 7), I'll definitely seek out hotel shops since those are my favorite. What better way to switch gears and decompress than getting out of town for a night, even if it is a working vacation (I'm not good at taking "real" vacations when I can do some work at the same time).
• I'll have to consider whether I can continue to do speaking engagements at different conferences. I love doing it, and my audience seems receptive. I'll have to be careful about the commitments I make. Same with media interviews and responding to every single email I receive.

All That Other Stuff

• I've already started removing my email address from some lists. I spend way too much time on email everyday.
• I just serviced my car and will be sure to get a haircut a couple of days before we open. Fortunately, the cosmetology school I like to use for a haircut is less than ten minutes from the restaurant.
• I'm letting several magazine subscriptions expire.

Basically, I'm trying to get everything done that I can before we open. A side benefit to this is that some of the things I usually procrastinate about, like scanning documents (paperless office), are finally getting done.

A Week in the Life of a Mystery Shopper

December 12th - December 18th...

I spent most of my time at the restaurant last week, which left limited time for mystery shopping. I was able to squeeze in a little work. Last week I earned $130 in fees and $10 in reimbursements.

I limited my work to a special $60 project that required me to buy several gift cards and send them in - no worries as the work is for a reputable company. In addition I shopped one fast food restaurant, 3 gas stations and a payday loan store.

I'm Opening a Restaurant (Part 3)

So what makes me think I'll be successful? I mean, everyone knows that new restaurants have a high failure rate. I believe this is because most new restaurant owners do not spend enough time planning upfront prior to opening and then responding to change after the doors open.

First, we will emphasize our unique positioning in the market: everything on our menu will be made from scratch. Nothing will come from a can. I expect this to lower our food cost but increase our labor expense since we will be spending more time on preparation.

Second, we will be frugal where it counts. Fixed costs - those expenses we have little control over changing - are the most important element of success after providing customers with wholesome, delicious food and legendary service.

• I negotiated aggressive terms on our lease. Frankly, the rent is so low that it's going to be hard for us to screw things up.
• Partners' salaries fluctuate with the cash balance. Both of us will be working managers. I anticipate working open to close, 7 days a week for the foreseeable future. Our goal is that we will pay ourselves a $1,000 weekly salary each, but my salary will range between $250-$2,000 per week depending on our bank balance.
• We will be conservative with other expenses as well. At least until we see how business goes, we aren't spending a lot of money on technology, benefits or other costs. We will buy a simple cash register, manage our own accounting and payroll, and not provide ourselves or other employees with additional benefits.

There are things that we won't be frugal with. We will never cut corners on food quality. That would be shooting ourselves in the foot. And, we will pay our employees what they are worth. If I have an employee who works twice as hard as the other employees, I believe he should be paid twice as much, or close to it. Retaining good employees will help grow the business.

I'm Opening a Restaurant (Part 2)

Our business was established as an LLC and there are three of us, each holding a 1/3 stake in the business. Here's the breakdown

• My silent investor put up the capital to get us off the ground. She gets 1/3.
• My business partner is in charge of the kitchen, including recipes, health code compliance and food cost controls. He gets 1/3.
• I am in charge of front end operations. I will manage the customer experience and the business side (bookkeeping, payroll, and other administrative tasks). I get 1/3.

We expect to open by the end of January. We will be open from 6 AM - 3 PM, seven days a week. Breakfast will be a traditional sit down, full menu service. Lunch will be served cafeteria-style (here in the south we call that "Meat and three"). We are located on a busy US Highway in a fast growing but primarily industrial area. Within five miles of our location there are lime quarries, pipe companies, large warehouses, and small offices. Although there are some residential areas around us, right now we have decided not to be open in the evenings.

I'm Opening a Restaurant (Part 1)

The last few months have been a really exciting time. My business partner and I put together our first business plan for our restaurant over two years ago. At the time we both were on a career track that we enjoyed. It was just a dream of ours to one day be our own boss.

I got a taste for what it feels like to be my own boss when I converted my first home to a rental property back in 2006. Seven properties later and I have a nice, steady stream of (mostly) passive income and I've learned how to (mostly) automate everything so that I don't have to spend too much time tending to my properties.

So, it's time for the next challenge. I am definitely taking a frugal approach to starting a business. There are two theories about what works.

1. At my old job, we spent tons of money during start up to raise market awareness and build our business. It worked just fine, but our founder had deep, deep pockets and was willing to invest a lot of money before the company ever saw a profit.
2. The other philosophy is to grow slow, watch your pennies, and never overspend. Had homeowners in the last ten years lived beneath their means by buying less house than they could afford, the housing crash would have been avoided.

I prefer the second option. More specifically:

1. For expenses that don't directly affect our customers, we will be lean and mean.
2. We will limit our exposure so that if the company fails, our personal assets are not at stake.
3. Our salaries will be coorelated directly to our cash balance in the bank.

My Frugal Miser - How Much Does the Average Person Spend on Utilities?

I often wonder how my spending on gas, electricity, water and phone compares to the average person. I like to think this is an area where I am pretty frugal. One fairly simple way I measure this is by comparing the meter reading for my power consumption with that of my neighbors. I haven't found a single neighbor who spends less than me on electricity.

In November, I spent the following for utilities:

$48.00 Electricity (I'm on the budget plan - the actual amount was $34.55)

$13.18 Gas (water and a "piggyback" heat system)

$32.45 Water/Sewer (our sewer rates are among the highest in the nation and have increased 329% since 1996)

$19.95 Internet (DSL light)

$65.33 Mobile Phone/Internet

Here are a few of the things I do to keep my utilities cost low:

• Several months ago I downgraded my DSL plan to the slowest available. I am still able to stream movies from Netflix without problems or interruption.
• I changed the Internet plan on my phone from the unlimited option as soon as AT&T offered it to me.
• I am mindful of the electricity we use, which I've talked about in the past. Here it is December and we still haven't turned the heat on. As I write this the weather outside is 44 degrees. Instead of heating the whole house we use an electric blanket and space heater to only heat the room we are in.
• Last (it's kind of gross), "if it's yellow, we let it mellow."

I am doing more research to see what the average cost is so that I can benchmark my usage. I found, for example, that the average household uses about 920 kWh of power in a month. While my household size of "2 + cat" is slightly smaller than the average, it's not by much. My average power consumption over the last 12 months has been 338 kWh, almost 1/3rd of the average. More to come...

A Week in the Life of a Mystery Shopper

December 5th - December 11th...

It was another slow week although I can live with what I made considering the work I did. Last week I earned $282 in fees and $152 in reimbursements.

I am now working full-time on the new business - and I promise, I'll tell you all about it any day now. Anyway, the shopping will be taking back seat to this venture. Being the Type A person that I am, I can't see myself giving up shopping altogether, and I don't have any plans to. Instead, I'll be focusing on the most lucrative opportunities or the ones which are most convenient. Certain gas station shops will come in handy. The commute to my new business is 45 miles each way. Ouch.

A Happy Moment

It doesn't take much to get me excited, but today is one of those days that I have a big smile across my face. Why? Well, this time last year I wasn't in the best of spirits. I was still stinging from a recent job loss and had just started a new job that paid 80% less and wasn't going to last. I had a mountain of debt and an almost $800 monthly car payment. I was selling airline vouchers left from my old job to raise cash.

But most pressing this time last year was my property tax bill. See, I don't escrow my taxes every month, so they all become due at the same time. Last year I owed a total of about $6,300 and I charged nearly all of that to credit cards. That would be a smart move except that the tax assessor charged a fee for me to use my credit card.

Fast forward to today, and I owe close to $9,000 in taxes (one house in particular I had just bought last year and the tax was just on the land, so the tax on it is about $1,800 more this year).

So why am I so happy? Because this week I managed to pay $3,136 in property taxes out of my checking account, fee-free. Yippee! Sure, that still leaves nearly $6,000 I have to come up with by the end of the year, and I'm sure I'll still have to charge some of the taxes to a card. But the fact that I've already paid over 1/3 without fees is something to celebrate. I wouldn't have been able to do that this time last year.

Oh, and the $800 car payment? I got rid of the Bimmer last December. Now I pay less than half that with plans to totally pay my car off in 2011.

2011 will be a turning point in my life.

December Goals

It's looking more and more like this business I've been alluding to will come to fruition. Of course, any time you are in the process of transition, it's harder to set measurable goals around life.


December Goals:

• earn $1,000 from mystery shopping (last month I earned $1,582)
  
• keep credit card/car loan debt under $40,000
• make measurable progress towards starting a business

I cut way back on mystery shopping in December. I don't see many opportunities, and with the holidays there probably won't be as many. Besides, I need to focus on launching my new business. I expect my debt levels to increase this month. Unfortunately, I haven't managed to put away the $9,000 I need to pay my property taxes and will probably have to pay them with a credit card. My goal is to keep it from increasing too much. Finally, while I can't exactly quantify what will get done, I do know I have to keep chugging along with the new business. Ideally that will include signing a lease and funding a bank account with our investor's funds.

Reviewing my November Goals

In November I managed to achieve two of my three goals.

November Goals:

• I earned $1,582 from mystery shopping (my goal was $1,500)
• My credit card/loan balance decreased, to $35,254 (my goal was $36,500)
• I did not pay any of my property tax bills (my goal was to pay two of them).

I decided to conserve cash instead of prepaying my tax bill. With all the uncertainty around my rental income - that is, until the last few days of November - I wanted to make sure I had cash on hand to pay bills.

A Week in the Life of a Mystery Shopper

November 28th - December 4th...

Once again I made very little from mystery shopping. I'm a little surprised since the first of any month usually offers several opportunities. I just didn't find much that got me excited - maybe I'm becoming a more discerning mystery shopper???

Last week I earned $90 in fees and $117 in reimbursements.

The reason I earned more in reimbursements than in fees is because several of the gas stations I did were reimbursement-only. The $10 in gas and $3 for coffee and a pastry was attractive enough that I accepted the job without a fee. For the week I shopped 10 gas stations, an office supply store and one restaurant.

Things are slow right now, but it's the perfect time for me since I am busy with some other projects. Fortunately all my rental properties are rented as my attention is now on the new business I am opening. Big announcement about that very soon, I promise.

As far as shopping goes, yesterday I traveled to another town to shop a testing center where I had to fail the GMAT. I also have 5 gas stations to do this week and a few simple merchandising jobs.

My Frugal Miser - November Expenses: $2,473

My expenses for November were reasonable with a couple of exceptions. While I did very well on fuel for the car ($3...thanks to shopping a lot of gas stations), I was a glutton when it comes to fuel for the stomach ($245...ouch!).






November Expenses

$255 Auto ($3 for fuel, $249 Depreciation, $3 for service)
$0 Clothing
$245 Food (both groceries and eating out)
$38 Entertainment (movies, gambling, alcohol)
$3 Gifts Given
$234 Household (supplies, etc.)
$100 Health Insurance
$0 Medical
$174 Interest on Debt (not including Mortgage Interest)
$20 Miscellaneous
$431 Mortgage Interest (primary residence)
$813 Mortgage Interest (rental properties)
$0 Personal Care

$10 Subscriptions
$0 Taxes
$179 Utilities
$0 Vacation

Total November Expenses : $2,473

Notes

• Household ($244) was a little high. I bought a new laptop computer mostly but not entirely with gift cards. I also paid my quarterly pest control bill, which I cancelled moving forward.
• I separate my mortgage interest by personal residence versus rental properties. I think this is an important distinction: the personal residence interest is an expense I should exercise control over moving forward when looking at ways to be frugal; the other is an expense that generates income.
• My goal for spending on food is $5 per day. This month I spent $8.17 per day. The largest expense I had was for Thanksgiving dinner with my mom but I did eat out a lot more than usual.

My Frugal Miser - November Income: $6,605

November was a decent month. Rental income was lower than normal because of some vacancies. One of the tenants I lost didn't pay the rent she owed for November. I received several mystery shopping payments from work done in earlier months, so my income was higher than it will be next month.


November Income
$2,558 Mystery Shopping*
$2,438 Rental Income
$1,610 Other Sources
$6,605 Total Income for November
*note that mystery shopping income will always vary from the monthly summary amounts I post. Here I report actual payments received (cash basis accounting) whereas in my monthly mystery shopping update I report the amount I earned for that month.

Notes:

• I offset Shopping income with Shopping expenses.
• One of my tenants paid their November rent in October.
• The category "Other Sources" includes non-recurring (or semi-recurring) income since I always seem to have a little something that doesn't fall into the other buckets.

Vehicles and the True Cost of Ownership: How Much is My Car Really Costing Me?

As a mystery shopper I have to be aware of my costs. Depreciation is the cost of using my car in a given time period. Instead of expressing the cost of my car as a one-time expense when I bought it, I spread out the cost of my car over its expected life. Depreciation does not include other vehicle-related costs like gas, maintenance or insurance. I separate those out and report them as they occur.

I determined that each mile I drive costs me $.0867 in depreciation. I ended October with 41,669 and at the end of November there were 44,544 miles on the odometer. I drove 2,875 miles. For November, my vehicle depreciation expense was $249.26.

This is the least amount of miles I've driven in a month this year, and my mystery shopping income was still a respectable amount. I attribute that to not taking any significant trips to shop as most of my work was local in November.

Update on Starting a Business

It's been a month since I alluded to a new business opportunity I am pursuing. It's been a busy month, but there's still more work to do. Here's what I've been up to:

• Site selection. We had second thoughts about the original location we had selected and spent most of November looking at alternatives. We are getting very close.
• Formalizing the business. The LLC has been formalized and I got the paperwork back from the Secretary of State. This is important because it means our name did not conflict with any other LLC in the state.
• Funding the Business. Our silent investor had some hurdles to jump through to access the funds. This has been the biggest obstacle thus far as we cannot sign a lease until there is money in the bank. Worse, the investor is only able to fund about half what we originally discussed. Not a deal breaker but definitely not the news I wanted to hear.
• Networking. I met with the CFO of the company I used to work at and he gave me some good advice. He also did a sanity check of my projections and overall he thought my calculations were reasonable.

I'm still holding back on revealing the business we are creating. I don't know why I think it's bad luck to do it now since I'm not usually superstitious. Here's a hint. It is a retail operation: we will be selling to individual customers, not businesses.