One of the most stressful aspects of being unemployed is watching yourself spending money while at the same time realizing that you are not creating any income.  Spending is easy, especially when you’re down on yourself and you have gobs of free time.  To make matters worse, you get used to a certain standard of living when you have a steady job, and it’s hard to let go of it.  Nice dinners, a night out on the town, valet parking, a good bottle of wine, going to a movie, a nice new shirt or jacket - the list of opportunities to spend money is endless.

But it is imperative that you lower your personal burn rate if you want to succeed at fleeing the cube.  Burn rate is a term applied to a start up company’s negative cash flow, or more simply, the amount of money they are spending per month while not bringing in revenue.  Applied to you, this is the average amount of money you spend per month.  Whether you are living off your saving or off your credit card limits, your burn rate decides when you run out of money assuming that you create no income.  This means that you want to minimize your burn rate in order to maximize the amount of time you have to create a stream of income.  What you do to create that income is up to you - start a business, find a better job, do contract work, etc.  The amount of time you have to do it is also in your hands - the lower your overall monthly expenses, the more time you will have available.

A lower burn rate will help you relax and focus on your goals, and even more importantly, it lowers the threshold for what you define as a sustaining income.  What I mean by this is that the point at which your stream of income covers your expenses will be easier to reach.  At this point, you will no longer be burning money but instead creating wealth.  The remainder of this article is devoted to simple steps you can take to lower your monthly expenses, thereby lowering your burn rate.

Eliminate your Luxury Expenses

When most of us hear the word luxury, we immediately think of Ferraris, Rolexes, and multi-million dollar mansions.  But a luxury is also defined as any expense that is not a necessity.  Using this definition we realize that many things, such as a new jacket, drinks at the bar, that cool new iPod, or even a pack of gum can be defined as a luxury.  Now, where you draw the line between a legitimate need and a luxury is up to you, but once you draw that line your next task is to eliminate luxuries from your monthly expenses.

I started with the things that are easy for me to give up.  Looking inside my closet I saw that I could easily go for a year without buying new clothes.  Also, I have no need to actually buy music CDs, or DVDs, or brand new books when there is so much media out there that can be had for cheap or free.  Also, as much as I like them, I have no need for any new electronic gadgets or computer peripherals; I’m doing just fine with what I have.  So my first step has been to avoid shops and malls as much as possible.  I don’t need any of the stuff they sell in there and so I might as well not go.  The only exception was the few simple gifts I bought during the holiday season, and I mostly decided ahead of time what I was going to get.

The next class of luxuries, which are a little more difficult to give up, are conveniences that you’ve become accustomed to.  For example, renting a parking spot by your residence, or parking at a pay lot because it’s quicker.  Driving when you could walk or take the bus.  Housekeeper, laundry, and dry-cleaning services.  Most subscription services, taking cabs, paying someone to walk your dog, and TiVo.  In fact, if you want my opinion, why not give up TiVo, cable, and TV altogether, at least temporarily, and to give yourself more time for the things that matter.

The last class of luxuries, which are the hardest for me to give up, are related to quality of life.  A good meal at a restaurant, a night out with your friends, going to a movie, a bottle of wine, an ice cream at Coldstone’s, etc.  These things are the hardest for me to give up because they often involve saying no to my friends.  They’re going out to dinner together?  Sorry I can’t go.  There’s a great concert coming to town?  I wish I could.  What I’ve been trying to do in these cases is to suggest a third alternative between “Yes, I’ll splurge” and “No, I can’t hang out.” Cheaper meals such as going out for a pizza, renting a movie instead of going to the cinema, cheap or free festivals, and doing fun things outdoors where they’re often free.

Postpone any Big Purchases

This one might seem obvious, but it involves resisting a lot of temptation now that you have more time.  You now have the time to buy all those big ticket things you’d meant to buy when you had a job.  That new laptop you wanted, a full tune-up for your car, a new closet for your room, a better dishwasher; all those things you wanted before but didn’t have the time to research, buy, and install.  I tell myself that if I didn’t need them before, then I probably don’t need them right now.  And I stay away from the stores.  Also, cool trips with your friends fall into this category.  A ski weekend?  A road-trip?  Spring break in Cancun?  You’ll be surprised how many of these pop up now that you have free time.  Again, put them off for a while, Fiji will still be there.

Lower your Fixed Expenses

If you are like me and your finances were pretty tight to begin with, then this is where most of your money goes.  Rent or mortgage, car payments, insurance, utilities, phone bills, groceries, and credit card payments.  It’s amazing how much money can go out on a monthly basis without your even thinking about it.  This also means that there is some room for improvement here.

Subscriptions. I started by cutting all unnecessary subscriptions.  Newspapers, books, magazines - you can get almost all that information online nowadays.  TiVo, cable TV, even Netflix - they add up quickly, and can be a big drain on your time.  What other subscriptions do you pay for?  Wine clubs, book clubs, newsletters - you can do without all of them for now.

Mortgage or Rent. This is almost always a person’s largest expense, and also the hardest to one to lower.  If you own your place, you’re not going to be moving and you have to come up with your payment every month.  I have no experience with mortgages, so I can’t be of much help in that area.  My only suggestion is to consider renting out any available rooms, and if there is demand in your area, even your parking spots.  Of course, this depends on your living situation and family.  If you rent, and especially if you are flexible and single, consider moving.  While I had a job, I chose a nice place in a convenient location close to the beach.  Of course, there are much more affordable and still nice neighborhoods, so I am in the process of looking for cheaper housing right now.  This is bound to make the biggest difference in my burn rate.

Bills. Next, I moved on to my regular bills.  These are bills you can’t get rid of, but you can always do something to lower them.  To lower your electricity bill, always turn off lights, get lower wattage light bulbs, keep the A/C off as much as possible, and try not to run your appliances at peak hours.  For your gas and heating bill, wear a sweater inside the house and keep the thermostat lower, and take shorter showers.  For your phone bills, try Vonage if you absolutely need a land line.  As for your cell phone, is it absolutely necessary?  If not, that’s one big expense you can cancel.  Otherwise, can you go to a lower plan and use your land line more often?  Chances of this are good if you are now working from home.

Car payments and insurance. My take on car payments is that you should avoid them if at all possible.  This is a corollary of living beneath your means.  If you can’t afford it, don’t buy it.  That being said, if you have car payments right now, there are a few things you could do.  Do you have a good amount of equity built up in your car?  Then you could sell it and trade down to something decent and pay in full.  Or if you just got started making payments, then maybe it won’t be too painful to transfer the car and the loan to someone else and buy a beater for yourself, at least for now.  I’m perfectly happy in my trusty, ten year old Toyota Corolla.  It gets everywhere I want to go and doesn’t give me much trouble.  Another savings perk of having an older car is in the insurance premium.  With a new car bought on credit, you are required to buy full coverage, and the premiums are often quite large.  With an older car that you paid in full, you can select as much coverage as you want or as little as is required by law, which can amount to some serious savings.

Health Insurance. My opinion here is that you can’t do without it.  If you do, you’re gambling every day that you won’t get sick or that you won’t get in a non-car accident.  If anything happens, you’ll have to pay all the medical bills yourself, or even worse, your family will have to pay them for you.  If you are just coming out of your job now, you have the option of staying on your employer’s plan and paying the premiums yourself; this is your right under the COBRA Act.  However, I suggest that you shop around.  If you are reasonably healthy, there are better deals from solid insurance companies like Blue Shield / Blue Cross out there.  The premium that I would’ve had to pay under my former employer’s plan was over $300 a month, and non-negotiable.  If you are healthy and rarely go to the doctor in the first place, however, you can get some very reasonable plans, albeit, with high deductibles.

Groceries. You might think that there isn’t much you can do to lower your grocery bills, but there are several steps you can take.  First off, loosely plan your meals for the week and make a list before going to the store.  This way you buy only stuff you need, and what you do buy gets used.  Also, don’t make any impulse buys at the supermarket, chances are those frozen coconut shrimp aren’t worth it. Also of importance is where you shop.  Are you used to shopping at an upscale foodmart?  Try a regular supermarket for a while; their prices are on the whole a lot lower.  Also, see if you can make do with the generic brands, or look for the brands of the things that you want that are on sale.  Finally, look for produce that is in season; the price per pound for in-season fruits and veggies is usually lower.

Credit Cards. This is another expense that a lot of us have to deal with.  If your balances are low and you are planning to live off your savings, my advice is to pay them off and put them away for now; use them as a last resort.  If you’re currently carrying balances on a few cards, try consolidating, so that you only have one monthly payment to make.  You can consolidate by transferring all your balances to you lowest interest card, or by using one of the many non-profit debt consolidation services out there.  Also, you can always call your credit card companies and ask for lower interest rates.  Some credit card companies will even suspend your payments temporarily if you explain that you recently became unemployed.

Enjoy your Lower Burn Rate

Once you’ve lowered your burn rate to an acceptable level, enjoy it.  You have essentially given yourself more time to take the next step, so take advantage of it.  If you’re looking for a job, then take your search seriously and take your time looking for something that will be fulfilling.  If you want to start your own business, then jump into it with both feet and go!  Just remember to control the inevitable business expenses.  If you look at things like me, and you’re trying to establish a stream of passive income, then you now have an income goal.  Shoot for your monthly burn rate because once your income stream covers your burn rate, you will have reached the break even, or sustainability point.  Once you do that, stop for a day, congratulate yourself, and celebrate!  It’s a big deal, and all the work you do from this point forward you can consider profit.  Also, drop me a line; I love a good inspirational story.

Sincerely, happy holidays and best wishes to everyone out there, in the blogosphere and not.  I hope the season gives you time to reflect and time with your family.  At least, that’s what the season means to me, so I’ve been sad to spend my first Christmas away from my parents and my sisters.  Their love and their support are largely responsible for who I am today, and I couldn’t ask for a better family.

Christmas here in Houston has been great though.  I’m with my godmother Carmen, my cousin Steven, and my grandma (we call her Abuelita).  We spent last night with Steven’s family on his dad’s side (Latinos are used to celebrating on Christmas Eve as opposed to Christmas day).  That side of his family is Cuban, and so we had some of the best roast pork I’ve ever had, along with some yuca, rice and beans, fried plantains, and some awesome deserts.

Talk about a hearty meal.

On Monday I arrived in Houston to visit my aunt, cousin, and grandmother for Christmas.  It’s been years since I spent quality time with any of them, and so the last few days have been full of catching up and hanging out.  My grandma and aunt are exactly as I remember them, but my cousin, who is in his senior year of high school, has changed...a bit.  By like 4 inches and 60 pounds.  He’s playing high school football, and it’s quite ironic that I still call him my little cousin.

The one thing I can’t get used to though, is that they don’t have a broadband connection at home.  I’m at a loss!  You mean I can’t check email obsessively or look something up on a whim?  And what do I do to waste time?  Watch TV??  Help!

So my cousin has been kind enough to accommodate my addiction, and he’s brought me by Starbucks a few times over the last week to get my fix of Wi-Fi.  I have to say though that the Starbucks / T-mobile hotspot leave something to be desired.  $10 for a day pass is a little steep for someone who just wants to check email and update a blog for an hour.  And their $30 monthly pass is really only mean for a true Starbucks addict.

Lucky for me, Barnes & Noble is right next to Starbucks (surprise surprise) and they have their own Wi-Fi service which they hawk for $3.95 for a two-hour session.  Perfect!  So the moral of the story is, if you’re looking to get a quick, cheap, jump onto the internet via Wi-Fi, head over to Barnes & Noble, not Starbucks.  Or better yet, walk around the neighborhood with your laptop until you find a friendly, and unsecured, neighbor.  Just don’t tell him I sent you.

All joking aside though, it’s interesting how dependant I’ve become on internet connectivity.  It’s not like I actually need access to the internet to blog, to do content development, or even to design and test webpages.  I can do all that offline, and then just connect for a minute to upload.  But when connectivity is not there, I convince myself that I will not be as productive, and that it’s not worth working on a disconnected computer.  That’s definitely a belief that can use some work.  I could have been a lot more productive, especially blogging, over the last week if I hadn’t been dumb this way.  And I’m sure the future will provide plenty of disconnected opportunities for productivity.

Then again, it’s time to chill with my homies.  And grandma.

I read an article last month in Business 2.0 about Domainers. The are basically entrepreneurs who buy, sell, and park domains for a living. Buying and selling is understandable enough. You can buy an unregistered domain for about $6. You can buy a registered domain from it’s owner for a negotiated price. The value of a domain varies widely, and understandably so. Things like recognizability, simplicity, length, branding, and the extension all play a part. Some domains get traffic without the owner having to lift a finger. For example, cellphones.com or mortgage.com. There is a significant amount of traffic generated to these sites by people typing them into the address bar. Typos of popular domains also tend to get traffic, as do domains that previously used to have sites that have been taken down.

One of the more interesting aspects of being in the domain business is the possibility of passive income. Sites that get traffic from type-ins, typos, and left-over traffic can convert that traffic to income using a domain parking service like Sedo. You basically register with Sedo (for free), host your domain through them, and they put a page tailored to your domain up, which can create revenue from pay-per-click traffic. This revenue gets split between you and Sedo.

After reading the article, I became interested in checking out the opportunity for a few reasons. It’s a cheap business to get started in ($6 a domain). There’s the possibility for passive income. There’s plenty of room for creativity in thinking up domain names. It’s not a time-consuming project. It seems like “domaining” is a skill, and I like learning new things.

So about two weeks ago, I just went for it. I’ve been buying a few domains a week since then, trying different angles for generating traffic from them. Generic combinations of words, typos, and well known names. Mostly .com. So far they’ve generated only a little traffic, and about $0.11 in income, but I’m just learning. I’ll let you know how it goes.

I’m going to be here, there, and everywhere over the next month and a half.  I’m in LA this weekend for my girlfriend’s birthday, I’m spending the holidays in Houston with my grandma, aunt, and cousin, then I’m taking a roadtrip in California around the new year.  The first two weeks of January I’ll be looking for an apartment and a car in LA, and the last two weeks of January I’ll be in Honolulu saying goodbye to my friends and to my home of the last two years, as well as showing my sister and her friend around the island and dancing my share of salsa.

I’m looking forward to all this, but worried when and how I’m going to make time to keep building Flee the Cube.  Also I need time to work on my other income-building projects (Podcast transcription and domain acquisitions).  I’m having a blast this weekend, (and doing no work at all) so I can already see that unless I make a plan of it and schedule in the time, I won’t get any work done.  I think mornings will be the best work time.  I just need an undisturbed block of time for myself, and at some point throughout the day, an internet connection.  That will be easier here in Cali than in Houston with my family, but then again, I won’t feel bad about not blogging much over the holidays.

It’s funny that prior to this I have rarely mentioned my job.  It’s eight hours of my day, five days a week.  Ok, more like seven hours when you take into account all those long lunches.  By most standards, I have an awesome job.  To begin with, it is one of the few non-military high-tech jobs available in Honolulu.  (Yes, I live in Honolulu) It pays well enough; I can afford the things I love to do, I treat myself once in a while, and even put a little something away.  My coworkers are young and fun.  I wear sneakers, jeans, and Hawaiian shirts to work.  My boss is relaxed, good-natured, and not too demanding.  About a year ago I moved out of my cubicle and into a nice office with an awesome view.  (Floor to ceiling windows looking out on the ocean) I don’t have too many responsibilities, and those that I do have are varied, so I’m always doing something different whether it be programming, hardware debugging, system assembly, machining, or design.  I have a lot of down time, and no one looking over my shoulder.  My commute is only 15 minutes and mostly along the coast, so I get to see cute girls on their morning jogs.  I am almost always done by 5pm, and never in the office after 6pm.  I can go to the beach after work or during lunch time, it’s all of two blocks away.  Yup, I have it pretty good.  And I can’t stand it.

Today was my last day on the job; I put in my notice six weeks ago to give my boss plenty of time to find a replacement and to stay on good terms with the company.  It’s a little sad to leave such a comfortable existence behind, but I am thrilled with the prospect of making my own way.  The next few months are bound to be hectic and full of transition, and I’m looking forward to them.  First of all, I have a full schedule for the holidays.  I will be spending Christmas with my grandmother, aunt, and cousin in Houston, and the new year with my girlfriend in California.  Then, I’m moving.  I need to find a place to live in Los Angeles, a car, and create a routine.  Most people also think that I will be looking for a job.  Finally, I’m coming back to Hawaii with my little sister for the last two weeks of January.  She lives in Buenos Aires and she’s been planning this trip all year.  At then end of January I’ll be moving to LA permanently, and bringing my stuff with me.

My plan is to develop a foundation for an income stream during this transition period.  There is no way I’ll be able to survive without a job for very long; I didn’t save that much.  But I want to be able to stay job-free once I settle down in LA, and the best way to do that is to develop an income stream that covers my minimum expenses.  Rent, food, and insurance.  I could also beg, borrow, and max out my credit cards, but that doesn’t seem like such a good option.  A third option that I will consider if necessary is part-time or contract work, as long as it’s 20 hours a week or less, and only while I’m building my escape route.

Wish me luck.

The idea that Erik and I have been playing with over the last couple of weeks involving podcast transcripts has been evolving and sharpening into something that we are both very excited about.  Right now, finding a good, relevant Podcast is mostly a game of recommendations and luck, but wouldn’t it be great if there was a better way?  These are the lines we’re working along, and we’ve set a launch date for our service already.