I'm starting an Internet business - Part 2: The Lifestyle 2.0 Model

A few days ago I wrote about how I'd seen the light in terms of work and lifestyle after reading 'The Four-Hour Work Week' by Tim Ferriss.

In part 2, before I go on to describe some of the ways that I can generate passive income - the first step towards achieving the dream lifestyle - I'm going to expand some more on the general concept of going from where I am now (which I'm going to call the Lifestyle 1.0 model) to where I want to be (which I'm going to call the Lifestyle 2.0 model).

I've been using what I've learnt recently to generate my own strategy for achieving my goals. I believe it's important to develop the strategy first, as this will:

• Reduce the likelihood of failing at the first attempt;


• Give me something to refer back to and provide motivation when things don't got as planned; and


• Give me clear milestones that I can use to track progress towards my goals.
  

The strategy that I've started to develop is called my Lifestyle 2.0 model. I can't profess that the model is particularly revolutionary; it is something I've developed based on inspiration from 'The Four-Hour Work Week', as well as other books I've read such as 'Rich Dad, Poor Dad' by Robert Kiosaki. My model takes the best concepts from these books, tunes them slightly to leverage the 'web 2.0' revolution that is happening right now, and also takes into account my experience and knowledge of risk management gained from my career to date in Information Security.

The purpose of my Lifestyle 2.0 model is to show how I'm going to use a few basic business and financial principles, as well as a commitment to taking advantage of the web 2.0 opportunities, to help me achieve my goals of gaining financial freedom and escaping the 9-5 so I can pursue my dreams full-time.

To understand my Lifestyle 2.0 model you first need to understand the Lifestyle 1.0 model. You will easily recognise the Lifestyle 1.0 model because it is what most of us live today. I've split the model into separate sub-models, including a 'cashflow' model and a 'living' model.

Lifestyle 1.0 Cashflow Model

This is a basic diagram that I've created of the Lifestyle 1.0 cashflow model that most of us can relate to:

The Lifestyle 1.0 Cashflow Model is a process flow that determines our financial wealth. The Lifestyle 1.0 Cashflow Model is the model that most of us follow, but also the reason why most of us will never be rich, or at the least will never achieve financial freedom.

Here's how it works:

1. Our sole income is from a salary. The salary comes from being an employee. The salary is dependant upon us providing x amount of effort and x amount of hours per week. The income we receive from our salary is paid after tax has been taken off.
   


2. Most of our income is spent on expenses. Our expenses is made up things such as living costs - bills, groceries, general expenses, etc, - but also payments to discharge our liabilities (debts such as a mortgage, credit cards, loans, etc).
   


3. If we have anything left over after expenses we may put this into a savings account. We can count a savings account as an asset because it is working for us - it is generating interest.

Knowing the difference between an asset and a liability

Here's a quick explanation of these terms, which is fundamental to understanding the model:

Asset: An asset is something that puts money into our pockets. Most of us wrongly consider our house as an asset. In most cases, an house is a liability not an asset because it takes money out of our pockets (mortgage payments, insurance, upkeep, etc). An house is only really an asset if you rent it out to provide an income, or you cash in on any equity that may be in the house, i.e. you sell the house and there's money left over after paying off the mortgage, or you re-mortgage the house to release some equity and you use the released equity to generate income that is greater than the proportion of the expenses inccured from the increase in liability payments (increase in mortgage).

Liability: Conversely, a liability is anything that takes money out of our pockets. One of the biggest liabilities that most of us buy is a car. A car loses value as soon as we get into it and continues to take money out of our pockets for as long as we keep it. A common misconception is that a car, like a house, is an asset. It's not because it's not making us any money. Also, unlike an house, a car will never become a real asset because it won't increase in value. A key principle in the 'Rich Dad, Poor Dad' book is that rich people put their money into assets, wheras the middle class put their money into liabilities which they think are assets.


Lifestyle 2.0 Cashflow Model

This is a basic diagram of the Lifestyle 2.0 Cashflow Model, which I explain in more detail below:

Here's how it works:

1. Our income is derived not a from a salaried job, but from 'income generating assets'.
   


2. As a business owner, we pay tax after we pay ourselves, and after expenses. The beauty of being a business owner, rather than an employee, is that we can claim a proportion of our expenses as a business incurred expense. As an Internet business owner, we work from home, which means we can claim a proportion of our household bills as a business expense. Because we're a business owner, we pay ourselves the minimum wage so as to only pay the minimum amount of income tax. The rest of our income from our business is derived from dividend payments. Of course, we also have to pay corporation tax, but corporation tax is at a lower rate than income tax, and corporation tax only gets paid on profit made after expenses. Although we pay both income tax and corporation tax, our overall tax burden is actually less than a salaried employee in the Lifestyle 1.0 model.
   


3. Most of our income goes back into our assets column. As our assets grow, so does our income, which in turn grows our assets. This cycle continually increases our overall wealth.
   


4. We buy assets and avoid liabilities. If we want a luxury such as an holiday, nice car, etc, we make sure it is paid for by our assets. We must not incur liabilities due to luxuries.
   


5. If we do incur liabilities, it is to buy assets. However, we use risk mitigation strategies to ensure that the income generated from assets financed by liabilities will always be greater than the expense of the liability that paid for the asset.
   


6. Although we do buy traditional assets such as property and shares, most of our money goes into creating new Internet business opportunities - we understand that we have the potential to make more money in the short-term by capitalising on this thing that is being called 'web 2.0', than on traditional assets.

A real asset makes money while I sleep

In my model, an asset is only really an asset if it makes money for me while I sleep. A day job is not an asset because it is dependant upon my contribution, both in time and effort, and once I stop contributing, so does the income. Whereas if done properly, a Lifestyle 2.0 asset will make me money, and then continue to make make me money without requiring any further effort or time on my part - it should be self-generating.

How do you measure wealth?

Am I wealthy if my net worth is $1 million. What about $2 million? In my model, the measure of my wealth is not how much I am worth in the traditional sense. In part 1 I suggested that a man earning $250,000 a year but working 80-hour weeks is actually worse off than a man only earning $50,000 but working a ¼ of the time.

In my Lifestyle 2.0 model my wealth is simply determined by the following calculation:

• If I was to stop working today, how long could I continue with the same standard of living before I would have to work again?

At the moment, because I'm living the Lifestyle 1.0 model and have only just begun the Lifestyle 2.0 model, the answer to my wealth question is only a few weeks. So the success of my Lifestyle 2.0 model will be measured by calculating my wealth in days, weeks, and years, not in dollars.

That's it for part 2, in part 3 I will describe how my Lifestyle 2.0 Cashflow Model will be used to achieve my Lifestyle 2.0 Living Model.

We're getting visitors!

Our first set of visitors from the UK have been confirmed. Rachelle's sister is coming over with her daughter in November, and my Mum and Dad have booked their flights for next March.

We're really looking forward to having the chance to show people around so they can see exactly why we've moved here.

This is the first place I've ever lived where I can actually say I feel proud to live here. It's such a difference to the depressing drabness of Doncaster and Worksop.

Brisbane is a city of 1.8 million people, yet because it is spread over such a large area it doesn't feel congested. As a relatively new city, you can also tell that some kind of planning has gone into the layout. One advantage of this is that there are lots of parks and green areas. It seems like nearly every street or neighbourhood is separated by a park. And every house, street and neighbourhood looks different. It has variety and colour. You don't drive down a street in Brisbane where every house is the same build and look as in the UK.

I think our love for Brisbane has helped dampen down any homesickness we might otherwise have had, or should I say what Rach might have had. I've moved around regularly since I was 16 so I new I'd be ok. Whereas in Rachelle's case, up until now she's never lived outside of a 20-mile radius of Doncaster, so I was worried that she might find it difficult.

As it happens she's been fine. Both Rach and Lauren have settled in really well.

And as for me, it's now nearly 3 months since we arrived here, and although there are people and things in the UK that I miss, I can honestly say I haven't once had any inkling of regret.

There's no going back!

A wet weekend in Brisbane

It was raining constantly over the weekend which meant any plans we might have had were thrown right out of the window, although it was quite nice not to have to do anything, especially after last weekend's exertions.

It at least gave me the opportunity to make some good progress on my first 'project' - what will hopefully be a successful stream of my planned internet business. More of which later...

We live next door to party animals!

When we got back from the Ekka on Saturday, our next door neighbours - George and Julie - invited us round for what we thought would be a couple of quiet beers. This was about 3pm. Little did we know, we'd end up getting absolutely arseholed and wouldn't end up leaving until midnight.

George's brother and family were over from New Zealand so they were having a little celebration.

I'm hoping to get some pics of the night from George's family because by the time the party really started to get wild I was too drunk to remember to take any photos. In fact, I haven't been that drunk in years. At one point I had to go to the bathroom and hang on to the walls trying my best not to fall over. I must have been in there about half an hour trying to sort myself out. I'm glad I did manage to sober myself up just enough to see out the rest of the evening because it turned into a really good night. I'm surprised we didn't get complaints from the rest of the complex though. Our complex is usually quiet but from about 9pm Saturday night were were all stood around the patio heater singing along to Stevie Wonder at the top of our voices!

While were were drinking and singing outside Lauren was having a ball with her new friends inside. When we left at midnight we had to drag her away - she was still up partying!

It's fair to say were were feeling a little rough on Sunday. We were supposed to go to a pub called the Pig 'n' Whistle in the city for 12pm on Sunday for a BBC meetup (Brisbane British Club), but we couldn't face it. It's a shame really, as the Pig 'n' Whistle serves Boddingtons so it would have been the first decent pint I could have had since arriving. Oh well, we'll just have to make sure we make it to the next one.

Ekka 2007

On Saturday we had our first experience of 'The Ekka'.

The Ekka is an annual 10-day event formally known as the Royal Queensland Show. It was originally called the Brisbane Exhibition but what with the aussie habit of shortening any words over 5 letters it's now known as the Ekka.

We presumed that the Ekka would be held in in the middle of a park or field, so we were surprised to discover that it is actually held in the city. A large part of the city is effectively cornered off. We were amazed by the scale of the event. There was even a cable car set up to take you from one section of the Ekka to another.

The Ekka is organised by the Royal National Agricultural and Industrial Association of Queensland, so the general theme is 'the country comes to the city'.


All in all it was pretty good but we ended up coming away about 2pm (we got there about 9:30am) as it was so hot. It was about 28 degrees but it felt like the hottest day since we arrived. The attractions included an animal boulevard, side shows, agricultural displays, fairgrounds, and a showbag pavilion. My particular favourite was the Woolworths Fresh Food Pavilion as there were loads of stalls offering free tasters of wine and gourmet food. I could have easily spent the entire day in there! It also had cooking demonstrations.


We went there mainly for Lauren though. She seemed to enjoy it. She got to milk a cow (sign in on flickr to see pics), went on some rides, stroked a llama, and came home with some goodies.

The Ekka is also famous for its show bags. These are bags of items from a particular brand, such as Barbie, Shrek, etc heavily discounted from what you'd normally pay for them. We bought Lauren a Barbie showbag and Fairy Princess showbag - one of which contained a wedding dress which she wouldn't take off for the rest of the day!


See more of our Ekka photo's on Flickr

Official Ekka website

I'm starting an Internet business!

The fist step is complete. We’ve now living in the location to have the dream lifestyle. The next step is to actually have the dream lifestyle.

For the last few weeks I’ve been doing a lot of research into the different ways I can use the Internet to make money. I’m not talking about a bit of pocket change. My goal is to make a good living online, giving us financial freedom and liberation.

A lot of ideas have been forming in my head based on things I have learnt from different blogs and podcasts that I subscribe to, and books that I’ve read. I’ve known for a long time it’s possible to make good money on the Internet, the thing I’ve been struggling with is exactly how.

Which is better: working 80 hour weeks and earning £250,000 a year, or working a ¼ of the hours and earning £50,000 a year but having the complete freedom of when, where, and how to live?

I’ve read quite a few books in the past about starting a business, getting rich, becoming a millionaire, etc, but none have had such a profound effect on me as The 4-Hour Work Week by Tim Ferriss.

As per the title, in his book he explains the steps he took to build passive income so that he only has to work 4 hours a week. He spends the rest of his time pursuing things he loves, and some of the things he does with his time are truly amazing. The beauty of this book is that it explains how you can leverage new systems and business models on the Internet to make money, while only working a few hours of the week.

Here are some of the key concepts in the book which I’ll explain in more detail below, I’ll also try and explain how I plan to put the concepts into action:

• Build passive income streams
• Eliminate non value-adding work and automate as much as possible
• Outsource

Build passive income streams

They key to financial freedom and liberation is to build income streams that make you money again and again, even when you’re not working. Like many people, at the moment I make money based on the hours that I work. It’s simple: if I don’t work I don’t get paid. So the key is to develop something that, once developed, does not require my time, effort or even presence to keep it generating revenue. I’ll get paid when I sleep!

Once established, in order for me to reach the goal of having income streams that generate me money without my time, effort, or presence, I then need to take the next step – eliminate non value-adding work and automate as much as possible.

Eliminate non value-adding work and automate as much as possible

There’s quite a lot of detail about this in his book which I’m not going to repeat here. I was familiar with a lot of these principles before as I’ve been on a Six-Sigma course, which shares a lot of these principles. In particular the Pareto principle, i.e. the 80/20 rule. This is the principle that you generate 80% of your revenue from 20% of your work, so the goal is to concentrate on removing the 80% of your work that doesn’t generate revenue and build on the 20% of the work that does generate revenue.

This is just one of the principles, there are many more. Many of which I found I could easily relate to.

Outsource

This was the best revelation for me. After working for outsourcing companies I’m more than familiar with how this works. What I didn’t realise however, it’s not just the big companies that can outsource work to India – I can and you can too! There are ‘Virtual Assistance’ companies established in India and China that you can outsource tasks to for as little as $5 an hour. You can outsource anything, and I mean anything. As long as it’s a task that doesn’t require their physical presence.

Take a look at GetFriday.com to see what I mean.

When I started writing this post I didn’t realise how large it would be and how much I had to write about. So I’m going to leave it here and break the rest of the post up over the next few days. In my next post I’ll explain some of the steps I’m taking to put these concepts into action, and the mistakes I made with my first Internet business.

Read I'm Starting an Internet Business - Part 2: The Lifestyle 2.0 Model

I complained to FIFA, you should too!

I've just read this news story on BBC Sport about comments made by FIFA Vice-President Jack Warner. I was so incensed it drove me to writing a strongly worded complaint to FIFA calling for his immediate resignation.

What do you think, should we finance a 'hit' on him?

Complain here

Safe and Sound!

Just to let you all know, Mum the Jack Vetriano picture and figurine both arrived unharmed. Phil the music box you gave Lauren did too, "The Mum's"! my framed photo also arrived safely and is now on my desk at work! It's these little things Daryl forgets to mention. There were however some casualties but more on that when I've finished unpacking all 68 boxes!! Oh and by the way, the glass thing he was on about with the spider in was an ornamental display of decorative stones and is actually rather pretty.

Rachelle

Hot! Hot! Hot!

I think we're starting to come out of Winter as it's been slowly warming up this week, rising to a high of 29 degrees today.

At lunchtime I went out and sat in the gardens of a Cathedral across from where I work and basked in the sun. I only lasted for about 20 minutes though. Boy was it hot!

The funny thing is, we're in the middle of flu season here. It seems like half of the company I'm working for is down with flu, many of whom I work with and who still insisted on coming in to work, so I'm amazed I haven't caught it.

At least in the UK a lot of companies have cottoned on to the fact that it's false economy encouraging people to work even if they're sick, as it only increases the likelihood of others getting it. That mentality doesn't seem to have reached Australia.

A lot of my preconceptions about hot countries have been shattered since moving here. I certainly didn't think flu would be a problem in Queensland!

Our stuff is here!

Our stuff finally cleared customs and arrived at our house yesterday, two weeks after arriving in Brisbane. Unfortunately we were one of the unlucky ones and we got levied for an inspection fee by Customs, which cost us $270.

They didn't do a very good job though because on opening our boxes we found that aftershave, pot-puree, and even a spider that was trapped at the bottom of glass display thing full of stones (I don't know what to call it - it's a woman's thing), all made it through customs.

We now have boxes full of stuff all over the house ready to be sorted out and found an home, so it's not going to be much of a relaxing weekend this weekend.

We need a bigger house, I'm sure we didn't need to ship half of the items we did.