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.

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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.

Guest Post: Creative Saving Strategies

The habit of saving did not come easily to me. Only in the past six months or so have I truly begun to become disciplined about socking part of my paycheck away. I could write an article about it myself, but it would be chock full of ideas and strategies that I learned from my buddy Arjay. Arjay is one of the only people I know who was putting money away while most of the people around him spentspentspent. So for this post, I turn you over to Arjay, age 23- who has well over two month's salary in savings.

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Here are a few tips on how to get started saving in your late teens or early twenties. I've been saving for a few years, and I'm glad I did because when I really needed extra cash I didn't have to stress myself out too much. Whatever your reason to save, everyone can always save- if not for something in particular, just to have something for a rainy day can really make you feel good.

Rule number one, start small. There's no need to run out and start saving a lot of money, and chances are if you suddenly save a large sum, you're just going to need it later, and that would defeat your purpose of saving in the first place. I started saving just little bits here and there with my first job right out of high school. I started saving maybe $5 or $10 dollars a paycheck. I've found that most people are comfortable starting out with saving one to two hours of work. As I started working odd jobs through college, I followed this rule, and it's worked out well for me. Small amounts over time really add up.

Next, pick a bank with a high interest rate. This is pretty obvious, but some people just get so excited about starting to save that they forget to get the most out of it. Most internet banks offer a rate that's way better than what you can get at a conventional bank. Some good ones are ING Direct and HSBC Direct, and most have referral bonuses if you get referred or refer a friend. Also, I found out that I earn more interest with ING Direct in one month than I did at Wells Fargo in a year, and most internet banks will let you open an account with a buck. That's no joke. There's another reason that I recommend internet banks, but I'll mention that later. Sign up for direct deposit and have your employer split your paycheck between your savings account and your spending (er checking for most people) account. Or if your employer doesn't offer direct deposit or can't split it, set up an automatic transfer on or just before payday. Remember always pay yourself first, and bills and rent can come after that. You are your most important bill. It's a lot better if your employer can split it for you because if you don't see it you don't spend it, and most importantly you pay yourself first.

So the other reason that I highly recommend internet banks is that most have to link to an existing checking account, so it takes at least one, in most cases two business days to get your money to where it is accessible (read as: spendable). If it takes that long to get cash, you're better off just leaving it in there for when you really need it or if something comes up. I've wanted to buy so many things with the money that's in my savings, but then I thought it takes too long to get it out so why bother, don't worry about your bank being on the internet. Most are FDIC insured, meaning your deposits are safe even if the bank goes under.

Lastly, increase your savings per paycheck. This is probably the most important rule next to saving gradually (small amounts over time really do add up). Like I said, I started really small and now I'm saving about 15-20% of my paycheck. The best way to increase your savings per paycheck is when you get a raise, just bank the raise. You didn't have that cash before, so just sticking it in the bank won't hurt you.

Now, I know what you're thinking…saving is great and all, but what if I get discouraged because I'm saving money that I can be doing other stuff with, or what if I'm really tempted to spend it. Here's how I combat both issues…First off, I think to myself that if I were to suddenly not be able to work tomorrow, I have enough savings to last a few months at least, and how many people can honestly say that. Sure I'll have to make some sacrifices, but I won't be on the street immediately. By saving and paying yourself first, is actually a way to pay for a sense of security. Think of saving as a kind of a "money insurance." I mean there's car insurance, health insurance, home owner's, and renter's insurance. Most people pay for those monthly anyway, so saving is really just like another type of insurance that you pay for, and while you may never need it…It's good to know that it's there. Also if you really end up not needing to tap into it, you can do something good for yourself later…like take a nice vacation or get a new toy that you've always wanted without going into debt. How many kinds of insurance reward you for never needing to use them? Saving is the only type of "insurance" I know of that rewards you instantly for not having to use it (whether it's the interest or sense of security).

Another way to keep you happy while saving…is to periodically reward yourself when you reach a savings goal (please note, a reward is not every month). Increments of $250, $500, or $1,000 work best. Have a fun night out with the portion of the paycheck that you would have saved, or take out some of the interest to buy a book, DVD, or something small that you've been wanting.

There'll be some more posts on how to get creative saving and what to do with your money once you're bored of "just saving." For now, my hope is to get the twenty-something crowd to start saving and thinking about saving in a new way.