A blog about spending wisely in your twenties, with advice on everything from cooking to saving money on gas; how to teach yourself to save money instead of spending it, traveling without breaking the bank, and much more.

Wednesday, June 11, 2008

Network Marketing, A Pyramid Scheme in Sheep's Clothing.

A buddy of mine recently got involved in "Network Marketing," which looked to me to be just a fancy term for "pyramid scheme." After a while it became obvious that some people really do make money with "network marketing," but most of them had time, money, and resources to dedicate to it in the first place. After a few months of going back and forth with me (and probably a few of his other friends) my buddy realized that a 23 year old with limited resources wasn't likely to make a lot of money using "network marketing," at least not with the group he became involved in. Here's his story, along with some advice for how to better spend the money you might find yourself paying for the privilege to maybe make a lot of money.

I recently got involved with a network marketing or multi-level-marketing company called Pre-Paid Legal. At first, I thought it was awesome, and so cool to be a part of something awesome, and even have a lawyer at 23. However, as time went on I found out that there’s a lot of information that they don’t tell you, and now it is time for me to get out. I am not endorsing or denouncing network marketing. In theory, it does make sense and it can work but for people our age it tends not to work for the following two reasons:

  • People our age tend to not have the network or people around us that make network marketing so successful. A lot of the people that are successful at it were former real estate agents, attorneys, politicians, or well off business people. Basically, people with contacts already. Sure there are those people who started with nothing, and worked the system and became millionaires. Those people are truly rare, but the company spins it as an everyday occurrence.
  • We’re too distracted or too busy to really focus on it. Not only does network marketing take some money and energy to get started, but it also takes a substantial amount of time. There are meetings, trainings, and conference calls…every week. Not only are they every week, but you have to pay for them! Sure you can write it off because you have a home-based business, but it’s a hassle, and your time can be used more productively.

Don’t get me wrong, it’s a great way to make extra money if you really really want to work it, but for us there’s a lot of other things that we can do that are both enjoyable, and help us build our wealth. So, this post is dedicated to other things to do with that monthly fee and the time it takes to work the system, and here they are:

  • If you’ve read my previous post, you can probably guess what my first recommendation is going to be. Save, save, save! I have reached the point where if something happened to my job, I will be able to live for about 5 to 7 months depending on how I manage my money, and if I were to stop working tomorrow, I could keep up my current lifestyle for about 3 months. If I started with $36 and saved that $36 monthly fee over 1 year at an internet bank at say…3.00% interest, in one year I will have put in $432 dollars, and will have a total of $475 at the end of one year, gaining $7 in the process all for doing nothing.
  • Invest, invest, invest. Or at the very least start learning. Mutual funds and the stock market are such an untapped potential especially for twenty-somethings. I’ll elaborate on these two topics on a later post, but the bottom line is that they can return greater returns than a savings account. That $36 monthly fee can be used for some very nice books (don’t buy them full price, get them free on bookmooch, or at a discount on half.com or amazon), or opening up a brokerage or mutual fund account (Note: that some banks/brokers have a minimum balance that you must meet to open an account…maybe that’s even more of an incentive to SAVE!).
  • Take a personal finance class or basic investing class at your local community college. I’m not sure about you, but at Orange Coast College classes are $20/unit plus a health fee or administrative fee of some kind. Most of the basic financial classes are no more than 4 units, that’s about $80/class say…$90 with that health fee. That’s less than 3 months of a Pre-paid Legal membership, and I’m sure the knowledge there is a lot more valuable than what Pre-paid Legal offers at their trainings. I’m personally going back to school for a childhood dream, and I’m using some money that I would have spent on Pre-paid Legal for it.

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