In this episode of Motley Fool Answers, Alison Southwick and Robert Brokamp welcome special guest Kimberly Palmer to talk about her book, The Economy of You: Discover Your Inner Entrepreneur and Recession-Proof Your Life. After speaking with hundreds of people who have taken on side jobs, Palmer explains what everyone should know before they start pursuing secondary income streams -- and if they do, how they can improve their odds of success.
A full transcript follows the video.
This podcast was recorded on Nov. 15, 2016.
Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert, here, at The Motley Fool. He's also looking like a lumberjack today. In case you're wondering, he's unshaven and in a manly flannel shirt.
Robert Brokamp: That is true, yes.
Southwick: For the ladies.
Brokamp: For the ladies!
Southwick: So Kimberly Palmer is back and this time she's here to talk about her book, The Economy of You: Discover Your Inner Entrepreneur and Recession-Proof Your Life. She's here to share her advice for launching a successful side gig to make a few extra bucks, or maybe even turn your part-time passion into a full-time job. All that, and more, on this week's episode of Motley Fool Answers.
Southwick: It's time for Answer, Answers. Today's question comes from Rita. Rita writes: "Hello, Alison and Robert. My niece is asking me for help with her 403(b). She recently changed teaching jobs, so is opening a new account and rolling over her old account. Where can I go for an honest ranking of mutual funds, expense ratios, etc.?"
Brokamp: Hello, Rita and aren't you a nice aunt for helping out your niece, here.
Brokamp: So for those who don't know, a 403(b) is like a 401(k), except that it is for non-profit, so you'll see them in schools, charities, hospitals, places like that. The 403(b) market is smaller. The 401(k) market total is about $5 trillion. The 403(b) market is only $1 trillion ...
Southwick: A measly trillion.
Brokamp: ... so that's still a lot of money. Very similar to the 401(k) in terms of contribution limits. This year it's $18,000 [and] $24,000 if you are 50 or older. And if you take the money out before you are 59 1/2, you pay a 10% penalty.
But there's one significant difference between the 401(k) and the 403(b) and that is for the most part, insurance companies dominate the 403(b) market. It kind of goes back many, many years ago when 403(b)s were often called TSAs or tax-sheltered annuities. They don't have to be, anymore, but still most of them are. What this means is there's often an extra layer of expenses.
Southwick: How fun!
Brokamp: The good stuff, yeah. Actually, the New York Times just did a recent series about 403(b)s and the first article was entitled "Think Your Retirement Plan Is Bad? Talk to a Teacher."
Brokamp: Yeah. And here's a good quote from the article. "As a result, the people who do the most good in the world, spending their careers helping others in exchange for modest paychecks, often get the worst retirement plans. In fact, millions of people who save in 403(b) plans may be losing nearly $10 billion each year in excessive investment fees," according to a recent analysis by Aon, a retirement consultant.
Brokamp: Right. So another interesting point about this is that if you have a 401(k), it's probably being administered by just one company ... so it might be Vanguard, or Fidelity ... whereas if you're in like a school system you have to choose from many providers, which adds an extra layer of complexity on it, as well as possible conflicts of interest because the people who often get the most assets are the people who have the biggest sales force. How do you pay for that sales force?
Brokamp: Fees and commissions. Now not all 403(b) plans are bad. Some actually have lower expenses, but because depending on how it's structured, it has lower regulation. That could be good, because then you don't have to pay for all the compliance and stuff that you have to do, but it's also why a lot of these are very bad because there are not enough regulations. But if you have a good employer with a good 403(b) plan, it can be a good deal.
So to get back, Rita, to your question about where the source of information [is] for performance and fees, it is the plan itself, so go into the plan. Look up each fund. Those fees and performance numbers should be accurate. They have to be accurate. In fact, that's the best source of information.
Let's say you have a Vanguard 500 Index Fund in your 403(b). If you go look up that same fund on Morningstar, it won't have the same fees and the same performance. It might be, because the one in the 403(b) has higher fees. That's how they pay the sales people. Or, because it's such a big 403(b), they've actually been able to get lower fees. So stick with the information that is within the plan.
However, you can use something like Morningstar to compare the funds within your 403(b) to what's available out there in the real world. So if your S&P 500 index fund is charging 1% a year, that is a very bad deal and you could use the information that you find on a site like Morningstar to talk to your HR person and say, "Listen, we're getting a bad deal, here. There are better options out there."
My ultimate advice for you, Rita, for your niece, at least, when it comes to rolling over her old 403(b) plan [is] don't put it in a new 403(b) because it's probably not good. Instead, roll it over to an IRA where you have more investment options [and] probably lower costs. When it comes to opening up a new 403(b), if it's a lousy plan, it might be better to choose an IRA instead, first, before you go to a 403(b) because the other big difference between 403(b)s and 401(k)s is that most 403(b)s do not offer a match. You don't have that big incentive that most 401(k)s do.
Southwick: What a downer!
Brokamp: It is a downer, and a great site for information about 403(b)s is called 403(b)wise. It was started by Dan Otter, who is a longtime educator, and Scott Dauenhauer, who is a certified financial planner professional. They do a great job of explaining the 403(b) market and helping you choose the best plan, especially if you are in one of these school districts that offer many providers.
Southwick: Well, to Rita's niece, thank you for being a teacher. I'm sorry this sucks for you.
Southwick: Kimberly Palmer is back. Hi!
Kimberly Palmer: Hi!
Southwick: Thank you. This time she's here to talk about her book The Economy of You: Discover Your Inner Entrepreneur and Recession-Proof Your Life and you're going to talk about how to launch successful side gigs ...
Palmer: Yes ...
Southwick: ... to make a few extra bucks or maybe even turn your part-time passion into a full-time job.
Brokamp: Yes, exactly.
Southwick: All right, let's just do it. Thank you for joining us. So I'm just going to tell a story. You're going to be like, "What is she talking about," but just stick with me, here.
So I was at the dentist, and as I'm leaving the dentist, this cop comes in and she was like, "Were you looking out this window when you were sitting in the dentist chair?"
And I was like, "No, I wasn't."
And she was like, "Well, that bank across the street just got robbed." It's the middle of ... It's like right before the holidays.
And I'm like, "Oh, that's crazy," bah bah bah.
And she's like, "Yeah." She's like, "Ah, in December bank robberies just go through the roof."
And so I looked it up, and it turns out three out of every four bank robberies in the D.C. area happen in December, and the reason why is because people are trying to find money for holiday gifts. Doesn't that make you sad?
Brokamp: That's the true spirit of Christmas. Not really.
Southwick: It was kind of sad ...
Palmer: It's sad ...
Southwick: ... the idea of like, you know, they want to give gifts to people but they don't have enough money, so they're going to go rob a bank.
Southwick: So here's the good news. You don't have to rob a bank. You can read Kimberly's book and learn how to make money in doing things that you enjoy.
Brokamp: Which is what you did.
Brokamp: Right? So let's start there. Let's start at the beginning. So why and how did you start your first side gig?
Palmer: So I started my shop on Etsy. It was right after I had my daughter, like six years ago, and I just felt like so much financial instability. I wanted to make sure that I could, you know, provide for her and also it was during the recession, so I just felt like I needed another source of income.
So I had this idea. I was actually shopping for gifts for someone on Etsy -- like jewelry -- and then I found this whole section on digital sales. So I realized, "Oh, I could sell something on here." So I started my line of money planners. They're like digital planners and I listed them on Etsy. My first one was a baby planner -- so how to prepare financially when you're about to have a baby. And people started buying them and it was so exciting to me.
Palmer: Yeah, and they're PDF, so I didn't have to ship anything. But yeah, it was super exciting.
Southwick: And for those who don't know what Etsy is, Etsy is great. I love Etsy. I buy a ton of stuff off Etsy. It's a site where you can go and open your own shop and sell anything from jewelry to I don't know. Anything and everything which we will learn later on in the show.
Brokamp: So in your book you profile about 100 people who have some sort of a side gig, and you wrote in the book that you were actually having nightmares about your fear of being laid off.
Brokamp: And so I'm curious. In your experience, how much is that fear of financial ruin ... how much is that causing people to go out and come up with a backup plan?
Palmer: You know, people really fall into two categories. The people are either like me, and totally driven by financial fear, I guess, or financial motivation to want to make more money ... or you just have this big passion and, you know, money isn't so much your motivator, but you just want to share whatever. Maybe it's a hobby you've always done since you were little. Or you want to get back into something you used to do. And launching a side gig is a way of pursuing that without giving up the security of a full-time job.
So, yeah, people are seemingly motivated by either money or satisfaction. The desire to create something and sell it.
Brokamp: Right. You gave all kinds of examples. Someone who worked at a deli and then started a cake business. A cop who started a tax business. What are some of the characteristics of the people who have done it successfully? If people are thinking of doing it, what should they be thinking of now to increase their chances that it's going to work for them?
Palmer: You really have to tap into something that you are uniquely good at, so you have to do a lot of soul-searching, first, to think about what people come to you for, for advice. Maybe you're giving it away free, right now. So, for example, maybe people are always asking you, "How do I set up my Twitter account? Or use Facebook?" Whatever it is people ask you for advice for, that's a sign that maybe you could make money doing that.
So it's really about figuring it out and picking that right thing and then figuring out how to market it and get word out that you now are open for business. And whether it's a product or a service, just finding your ideal customer, your clients, and connecting with them.
Brokamp: I think that's a big part of it, where people might be hesitant, and think of the marketing part. Going out there and putting yourself out there as an entrepreneur or a solopreneur, one of the terms you used in your book. How much of that is necessary to start the business? Can you be a successful side-gigger if you just have no interest in marketing?
Palmer: I think no. I think this is probably the hardest thing for a lot of people. It's definitely hard for me. You have to get in the mindset of being a seller. Like you are selling something and you need to persuade people to buy it, so you have to have some level of comfort with that. Putting yourself out there. Reaching out to people that aren't already your friends and just saying, "I'm open for sales, now." And that's a big mindset shift, I think, for people that can be a hurdle, but it's so important to embrace that marketing aspect, or else you won't be making many sales.
Brokamp: Got you. But how much time does it take? Let's say someone has their full-time job. Like maybe they have a kid or two at home and they're thinking, "I have this hobby. I have this interest. I'd like to do something with it." How much time should they expect to spend on a side gig?
Palmer: It's actually so important, when you're pulled in all these directions, figuring out ways so you don't have to spend too much time and you're being superefficient about it. So it might be doing things like setting up your social media account so you're sharing Facebook messages, sharing tweets, and you don't even have to be on your computer all day when you're doing that. You can use a tool so you just spend an hour scheduling them and then over the next week they come out. By encouraging word of mouth, when you do have clients or customers, asking them to tell a friend. Incentivizing that by doing giveaways and discounts.
The most powerful marketing tool I found was my email newsletter, so I started building up an email newsletter by offering something free for people to sign up with their email, and then suddenly I had hundreds of people. Every time I list a new product on Etsy, I can email them, and those are already people with a good chance who are interested in buying it. So it's about choosing the most efficient methods, because we don't have a ton of time.
Brokamp: So in your book you highlight lots of success stories. I'm sure you came across people who tried it and didn't succeed. Anything that's common among those stories? What are the big reasons why people don't find a way to make their side gig a success?
Palmer: Yes. The biggest thing -- and I actually made this mistake myself -- is when you sink a lot of money into your side gig before you've even generated any traction and aren't building sales yet. So doing things like spending a couple of thousand dollars for a professional to design your website when you could probably just do it yourself with a few hours on a weekend. So sinking money into the business before it's really taken off the ground.
I made the big mistake of spending a few hundred dollars printing my money planners before I realized that people just wanted to buy the PDF and not the printed version. I actually still have like a closet full of spiral-bound planners that are not going anywhere. So just looking for the cheaper way to do things.
Brokamp: It's interesting you bring up the point about money, because you touch a little bit in the book on getting your personal finances in order for this business. So if someone is thinking of taking this risk, what should they be doing in their personal finances to get ready to be doing this side gig thing?
Palmer: It's so important to take a close look at if you have debt. If you have credit card debt, you're going into it in such a vulnerable place already. That's why it can really make sense to kind of get your finances in order before you start something new.
So doing things like making sure you're paying off your credit debt if you have any, or making a plan to pay it off so you're not burdened by that going into it when you're trying to launch something new. Because when you do launch your side business, you need all of your energy focused on it to really make it a success, and [when] you have all these stressful financial things going on outside of it, it can be hard to do that.
So just kind of making sure you're being responsible and have things set up in a way so you're ready to focus on this new project.
Brokamp: Got you. One of my favorite stories in your book, by the way, is the one about your dad who, if I understood correctly, was a wildlife filmmaker and photographer ...
Palmer: He still is, yes.
Brokamp: ... and then he decided to try being a stand-up comic.
Southwick: Oh, wow!
Palmer: Yes, he did.
Brokamp: Which came with, I would say, mixed success?
Palmer: Yes, and I definitely would not call it a failure, because even though he's not a full-time stand-up comic today, he learned a lot from the experience. He gives really funny speeches. He's so good at giving speeches, so his work life was completely enhanced by that experience, even though he's not performing live anymore.
Brokamp: And he had the British accent, I assume ...
Palmer: That helped.
Brokamp: ... which helped a little bit ...
Brokamp: ... but he wasn't -- if I understood it correctly -- raunchy enough.
Palmer: He was so G-rated that it didn't work. Stand-up comedy is not usually G-rated.
Brokamp: Got you.
Brokamp: So let's say people are thinking about this and they go, "This is a good idea. I have some ideas." Where should they go first? In your book you had all kinds of great ideas in term of websites and resources. Are there any go-to resources that people should check out first?
Palmer: Yes, there is such a strong infrastructure for e-commerce. So, sites like Etsy, which of course I love. Also Fiverr is a good place to start if you're selling services. There's also a bunch of freelance websites, so if you're using your own professional background... Say you have an architecture or a legal background, you might just be able to find contracts that way. There's actually new sites launching all the time. It can be hard to keep up on things, so you have to think about what field you're in and a simple web search can probably bring you to the latest and easiest app or website that helps you sell that and find your customers.
Brokamp: Got you. You listed the top 50 side gigs in your book. Number three was financial services provider. You used to be the senior money editor at U.S. News & World Report. Have you ever thought of being a financial planner?
Palmer: Oh, my gosh. No way.
Palmer: No. Yeah, that's not for me.
Brokamp: That's not for you. Got you. That's my idea for a side gig, by the way. Maybe one day in the future. We'll see what happens. Anyways, the book is excellent, and the thing I think is most interesting, sort of to bring it back to where we started, was this whole idea of having a backup plan and a Plan B. We all know about diversifying our investment portfolio, [yet] we don't really think about diversifying our human capital or our work portfolio. But we are all in on our jobs, on our one employer, so it makes complete sense to have at least something waiting in the wings.
Palmer: I think you have to. It's scary these days. I just don't think we have the job stability that maybe people had in the past, and we have to have that backup plan for ourselves, even if it's having a strong LinkedIn and Twitter presence so you could find a new job tomorrow if you had to. But I just think it's so important for our overall financial security to have those backup plans always in place.
Southwick: I have a hard time thinking about what I would do in retirement. But the idea of like turning a hobby that I love into a side gig and taking that into retirement, where I'm still generating some money, is a nice thought for me. I like that. Not just for the comfort of money coming in, but just to keep me busy and excited about something.
Brokamp: In your book you quoted Dan Pink -- who many in Motley Fool Answers or any other listener knows because he's been to the Fool several times -- saying that basically we're all going to have to work a little bit in retirement because we're living longer and we just have to be prepared to have to be doing something later in life than maybe our parents or grandparents did.
Palmer: Yes, I mean retirement, I feel like, doesn't even hardly exist anymore, given how long we live. So we are going to be doing something, so hopefully we like it.
Brokamp: Right. Alison, what would your side gig be?
Southwick: I should have expected you to ask this question. I am going to tell you what my side gig is going to be after we do the next segment.
Brokamp: OK, I look forward to that.
Southwick: All right, Kimberly. Yet again, we're going to ask you to stick around for a few more minutes, here, and play a little game if you're up for it.
Southwick: OK. So we talked a lot about Etsy, and how you can sell anything and everything on Etsy and that really is the truth. So today we're going to play a little game that I guess I'm calling, "Seriously, Etsy?" where you have to guess if an item I'm going to describe for you is really on Etsy or if I just made it up.
Southwick: Are you ready?
Brokamp: We're ready.
Southwick: Both of you can vote, so I will keep a piece of paper, here, to keep very poor scores, [as] I have shown in the past. All right. First one. "Dinosaur costume for a [Syrian] hamster." Five dollars, by the way. "Make your hamster absolutely fierce in this dinosaur costume perfect for photos or Halloween. Note: this costume is for Syrian hamsters only, not for dwarf hamsters."
Palmer: That's definitely real. I would maybe buy that.
Southwick: Wait a second!
Brokamp: I have a hamster, so I'm going to check this one out. I'm going to go with it and say it's true, too.
Southwick: All right, you both got it right. It is true.
Southwick: For five dollars you can get it. OK, next one. It's a Pokémon cookbook. "Got to catch them all so you can eat them for the ultimate foodie Pokémon master. Enjoy recipes for braised Pikachu with roasted Oddishes, Psyduck Confit with sautéed Vileplume caps, candy Pidgey pie and Cloysters Rockefeller. Wash it all down with a dry Dratini cocktail." Only ten bucks.
Palmer: I don't know. It doesn't sound appetizing to me. Does it?
Brokamp: It doesn't either, especially because we had a bird named Pidgey.
Brokamp: [crosstalk 00:20:41] But we also have a cookbook called something like A Cookie from Your Wookie, so I assume if such a thing exists, this book must exist.
Palmer: I'm going to say no.
Southwick: Ah, Kimberly got it right.
Brokamp: Oh, man!
Southwick: So we came up with this, this morning, and I posted ... We have a Pokémon Go channel, and so I asked people to give us some recipe ideas because a few of us are pretty active on Pokémon Go. Oh, my gosh. The ideas were hilarious. So I am going to do a side gig of creating and publishing a Pokémon Go cookbook.
Palmer: That's a great idea.
Southwick: It's going to take off. All right. Next up we have Hawk Eats Sea Lion Placenta on Dinner Plate. Only $69.00. "This plate is part of my dinnertime series" -- just listen in and I'll do the description -- "which includes various themes from the Wild Kingdom captured on porcelain. This 10-inch white porcelain plate features a Galapagos hawk enjoying a meal of sea lion placenta. Note, I honestly do not know whether or not it is safe to eat off these plates."
Brokamp: I hope it's real.
Southwick: It is real. It is really on Etsy. OK. All right.
Brokamp: That's incredible. Have they sold any?
Southwick: I don't know. Probably.
Brokamp: Doesn't it say like the number of sales on Etsy?
Southwick: So we can go back and see. All right. Next one. Real Moose Poop Doo-Doo Nugget Dangle Silver Wire Earrings. Oh, for $14.99 by the way. Here's a description...
Brokamp: That's a bargain.
Southwick: "Genuine moose poop nuggets, a product of Maine, here, in the U.S." Now you know what those folks do during those long New England winters. Bonkers! That's what! "Collecting moose droppings, drying them, coating them in polyurethane ... I assure you there's no smell ... and rigging them as dangle earrings."
Brokamp: I have a friend in Maine who sent me napkins made out of moose poop, so if that's possible, this is possible.
Brokamp: Not that I would ever use those napkins, by the way.
Palmer: Are they painted, or...
Southwick: Yes, I can show you pictures of everything, by the way, when we're done.
Brokamp: Is that true?
Southwick: But yes, it's true. It's moose poop. What it looks like -- it's moose poop covered in like a shiny polyurethane coating.
Brokamp: That is disgusting.
Palmer: I can look it up.
Southwick: It looks what you ... It looks [00:22:48]. All right, the last item. It's a candle -- a scented candle -- and the smell is freshly signed divorce papers. "Nothing captures the rich parchment of a legal document declaring an end to your failed marriage like our candle, flesh-, freshly signed divorce papers."
Southwick: "It's not like everyone around you didn't see this coming, and with the light from this candle, now you can, too. Part happy, part sad, a little relieved, and unsure of your financial future's stability. The complex emotions of divorce are captured in this very complex candle."
Brokamp: I want to say yes, but I'm going to go with no.
Palmer: Me, too.
Southwick: Oh, you guys are so good. This is not available on Etsy; however, you can still buy it.
Brokamp: So it's a real thing!
Southwick: It is a real thing. You just can't buy it on Etsy. So it's by this candle company called Flick Candles. They make other scents. As they call it, "scents for life's disappointments."
Palmer: Oh, my gosh.
Southwick: So there's one called Frat House Basement Party. Smells like a DUI. And the Friend-zone.
Brokamp: I'm getting all kinds of ideas for side gigs out of this by the way.
Southwick: Here's a candle that you can get on Etsy, though. It's called the Putin scented candle. "The Putin scented candle combines notes of pine, earth, and smoke billowing from the cities of your enemies. It is a manly fragrance designed to evoke the essence of Vladimir Putin and eliminate the smell of political dissidents from your home." So while you can't get freshly signed divorce papers, you can get the Putin candle.
Brokamp: Very nice.
Southwick: So there you go.
Brokamp: For all your favorite comrades.
Southwick: That was a close one, but Kimberly won.
Southwick: You guys got me. It's hard to get one over on you guys. Kimberly, thanks again for joining us. This has been a lot of fun...
Palmer: Thank you.
Southwick: ... and putting up with us ...
Palmer: Thanks for having me.
Southwick: ... and all this wackiness.
Southwick: All right, that's the show. Head over to our podcast center at Fool.com/Podcasts. You can listen to past episodes or discover other Motley Fool podcasts. You can also learn how to subscribe to one of our services like Stock Advisor. Two new picks are out this Friday. Our email is Answers@Fool.com. We are overdue for a Mailbag episode, I think, but we are also swimming in questions from listeners, so let me just go ahead and apologize for that now. Bro feels particularly bad about ...
Brokamp: I really do.
Southwick: He feels very, very bad about how many emails we have not answered.
Southwick: I feel less bad. But, I don't know. I'm less of a feeler, I guess.
Brokamp: I guess so.
Southwick: The show is edited handcraftally by Rick Engdahl. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody.