A few days ago, I read Jason Fried’s wonderful article How to Make Money in Six Easy Steps. The article details Fried’s growth as an entrepreneur from a young child to running the successful software firm 37signals.

Fried’s “six easy steps” are as follows:

1. Understanding the buyer is the key to being a strong seller
2. It’s all about passion
3. Charge real money for real products
4. There are different pathways to the same dollar
5. Bootstrapping
6. Practice

This actually turned out to be one of the few articles from the ‘net that I actually print out, because I wanted to jot down some of my own notes on the margins. I realized, after I was finished, that these notes actually made for the backbone of a pretty compelling article in its own right.

So, without further ado, here’s my own “five easy steps for making money.”

1. Practice
This underlines everything that a person can do to make money. The greater your skill, the more money you’ll make by plying that skill. How do you improve your skills? Practice, preferably in a deliberate fashion. Break down what you’re doing into little pieces, and practice those pieces.

For me, that often means doing writing drills. Yep, I do writing drills pretty often. I’ll do little drills like “write a complete story in fifty words or less” or “compress this document as much as possible without losing any meaning” all the time, just for the sake of practice. It’s a skill builder.

I usually don’t find actual writing tasks to be that strong in terms of practicing. Many people assume that if they do the task professionally, they must be good at it. That’s akin to a professional basketball player believing they’ll stay on top if all they do is play games of basketball. The truth is that the best basketball players are constantly doing drills and never leave the gym.

So how do you practice things like selling? The article offers a good suggestion:

Go buy something on Craigslist or eBay. Find something that’s a bit of a commodity, so you know there’s always plenty of supply and demand. An iPod is a good test. Buy it, and then immediately resell it. Then buy it again. Each time, try selling it for more than you paid for it. See how far you can push it. See how much profit you can make off 10 transactions.

Start tweaking the headline. Then start fiddling with the product description. Vary the photographs. Take some pictures of the thing for sale; use other photos with other items, or people, in them. Shoot really high-quality shots, and also post crappy ones from your cell-phone camera. Try every variation you can think of.

I think it’s useful for almost everyone to practice transferable skills – like selling. Written communication is one type of transferable skill, as is public speaking.

If you want to be great, practice.

2. Care
What do I mean by care? You have to want to do the things you’re doing – and want to do them well. If you don’t care about it, you won’t be able to go the extra mile to stand out from the crowd.

This goes hand-in-hand with practice, of course. If you don’t care about the field you’re in, you’re not going to practice and you’re not going to rise to the top. Caring about your performance and what you’re doing is what will bring you to the top, and practice is a key component of that.

Quite often, this is intermingled with the idea of passion. In the end, they both point to the same thing. If you don’t have an emotional involvement and a drive to always move forward in this field, you’re not going to succeed.

3. Know what people want (or need)
You might think that the particular skill you have or the particular item you want to sell is a great thing. The question really is whether or not anyone else thinks that item or skill is a great thing (and thus worth paying for).

Something is only worth what someone else is willing to pay for it with their time, money, or effort. In my case, what I sell is generally paid for with the reader’s time (through ad space sold to banks and financial institutions on my website), though I do sell other items as well (such as my books).

How does it “sell”? People find value in reading what I write, whether it’s because they find it useful for their own personal growth or because they find it entertaining. There’s enough value there that people are willing to pay for it with their time (and occasionally their money).

People want to have a sense of control over their lives. My site attempts to fulfill that want, at least in part.

4. Make something distinctive that people will want (or need)
In order for that “sale” to continue, I have to continue writing worthwhile stuff that’s useful enough or entertaining enough for it to stand out from the crowd of sites that talk about personal finance and other topics. How do I do that? I talk about my own story in depth. I post very regularly so that there’s always fresh content to read. I use conversational language in my writing rather than the drier tones often found in financial writing.

It is those factors that make up the “special sauce” – the distinctive element – of The Simple Dollar. If I didn’t do those things, my site would be one of many personal finance blogs looking for an audience. It’s the distinctive things that makes The Simple Dollar stand out a bit, and I keep them in mind with everything that I do.

What do you have that’s distinctive? Don’t just look at your advantages – quite often, your disadvantages make you distinctive. I’ve seen the work of a blind painter. It’s stunning, but part of that overall picture comes from the disadvantage of the artist. Because he has overcome that disadvantage, it contributes something more to the finished product.

5. Create multiple revenue streams
Regardless of what you’re doing in life, there’s a big benefit to creating multiple income streams. Many people make their life more difficult by focusing only on one income stream – their primary job – and avoid creating more. Then, when that primary stream falls apart through a job loss, they’re in dire straits.

The solution is to find ways to create more than one revenue stream in your life. This requires some sort of investment on your part – money, time, energy, ideas, or some combination of them. The proceeds come in a fairly regular income. Sometimes, this income can be active (like a side business), which requires continuous work for more proceeds. At other times, it’s passive (like an investment), which does not require additional work.

This is going to be a significant theme of The Simple Dollar moving forward. As I write this, I’m working on developing a few additional income streams for the future, and I plan on writing about them once they’re in place.

Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

Here’s the flat-out truth about running a small business: you, the business owner, are where the buck stops. Period. Small businesses are a great way to start earning more money, but they’re not easy.

When something goes wrong, it’s up to you to clean it up. Yes, you may have employees who will take care of it, but those employees are far from perfectly reliable – and often, when you’re in startup mode, you don’t have employees to take care of the problem.

You’ve also got the demands of needing a certain level of income, either to survive off of the business or to earn enough to jump into the business full time, which means that when something does go wrong, you’ve got a powerful motivator to drop everything and fix it.

The end result? Sometimes, starting and running a small business can inject complete chaos into your life. A server goes down and you’re forced to choose between that and your child’s first soccer game. An employee fails to show up and you have to fill in, ditching a date night with your wife. Or, you choose to forget about the business and it begins to fail because of unmet customer expectations. Either way, you lose. (I have to make choices like this sometimes – I decided a long time ago to sacrifice the long term health of The Simple Dollar at the altar of my family’s needs when the choice comes to that.)

How do you manage all of the chaos of a small business without going crazy? That’s the topic of Clate Mask and Scott Martineau’s book Conquer the Chaos. Small business really is a juggling act, particularly during the startup era. Does this book have solid advice for dealing with this? Let’s find out.

1 – The Entrepreneurial Revolution
Why do people become entrepreneurs and start their own businesses? Time. Control. Freedom. Running your own business gives you these things in a way that being an employee simply cannot. You also, of course, have the direct relationship between your work and your income, which means that you aren’t merely a cog in someone else’s machine. All of this can be incredibly tempting. But…

2 – Enter, Chaos
When you make the choice to dig into entrepreneurship, you find yourself constantly have to make very difficult choices between your small business and your personal life. Do you choose to spend this evening watching a movie with your wife or building a better website? Do you meet with this great potential customer or do you make it to your daughter’s recital? No matter what you choose, you’ll have some regret about missing the other choice. Even worse, you’re often making these types of choices – the things that form a huge part of the foundation of your life – on the complete spur of the moment. It’s stressful and chaotic.

3 – Grow or Die
Making the challenge more difficult is that your business has a very simple imperative, especially during the startup phase: grow or die. Most businesses don’t open the doors with the ability to pay the bills. They have to grow to make it. In order to grow the business, you’re going to be pushed strongly towards the “business” choices instead of the “personal” choices, especially at first.

4 – Emotional Capital
What you begin to find is that you have only so much passion inside of you. How are you going to use that passion? Are you going to channel that passion into your personal life and view the business as merely a support structure (one that probably won’t survive over the long term)? Or are you going to channel that passion into the business, growing something tremendous? Alternately, you can try to split the two, but this will deal a lot of difficult choices onto your plate.

5 – Disciplined Optimism
The solution? Discipline. Spend some time figuring out what the priorities are well in advance so that you’re not stressed out and torn when a challenging decision comes before you. Better yet, resolve those priorities to the point that you feel good about your choice and you feel optimistic about what you’re building, whether it’s your family or your business or whatever you decide.

6 – Entrepreneurial Independence
Another challenging factor is the double-edged sword of independence. Independence means you get to make your own decisions, but it also means that you don’t have the guidelines, advice, and parameters that a typical job has. My best solution for this is to find a mentor who can guide you through some of this difficult transition.

The rest of the book really focuses on some of the resolutions for these problems, after the authors made clear what the challenges are.

7 – Centralize
One thing that many harried small business owners do is that they keep tossing in “solutions” for specific problems. While this can help in the short term, eventually there are so many “solutions” in place that the regular operation of the business can be confusing. You’re far better off centralizing things with only one system for handling everything – much like GTD handles everything for your personal tasks.

8 – Follow-Up
Another thing that often happens with small businesses is that you find yourself with tons and tons of loose ends, all of which need to be followed up on. While it’s often tempting to just go start new initiatives, it’s usually more rewarding in the long run to devote time to tying up all of the loose ends in front of you before moving on. If you don’t do this, the sheer weight of all of the loose ends will crush any forward progress you want to make because so many of the things you need in order to move forward will simply be undone.

9 – Automate
This chapter doesn’t refer so much to automation as it does to having a series of very standardized procedures for various things you’ll be doing as a small business owner: customer follow-up, inventory, and things like that. Part of that standardized procedure relies on having a reliable calendar that reminds you of when specific steps of that procedure needs to be done. An example: if you would ideally like to follow up with a new customer three times at certain intervals after their initial purchase, these can be entered into your calendar immediately after the purchase. Then, on that day, you just look at your calendar and boom there’s the reminder of the follow-up you need to do.

10 – Avoiding the Backslide
Once you get things rolling well, it’s easy to sometimes fall back into chaotic situations. One easy way to tell whether or not you’re falling back or you’re about to run into trouble is to ask yourself if your business would survive if you disappeared for a few weeks. If you can’t say yes, then you’re on the verge of backsliding – your systems aren’t up to snuff to avoid potential chaos.

Is Conquer the Chaos Worth Reading?
I would highly recommend this book to anyone who is in the planning stages of running a small business or is having difficulty with their current business. Conquer the Chaos really isolates what most of the common problems are for a small business owner and provides at least the outline of some solutions for those problems.

I would probably couple this book with a great book on time and information management, like GTD, which focuses heavily on implementing a centralized system that can deal with a lot of the challenges in this book.

This book works best when it’s applied during the “thinking” and “planning” part of small business preparation – once the ship has started to sail, much of what’s in this book is harder to implement and consider. In other words, if you’re looking at entrepreneurship in the future, particularly the short term, give this book a read.

This post goes out to all of the readers who are about to graduate from college (and from high school, for that matter) and are wondering what comes next (hopefully, you already know and have a plan for it, but if you do, you’re in the minority).

A few days ago, a college student I know was talking about his upcoming graduation. His plans mostly revolved around getting a good paying job, but he also talked about how he might go back to school some day and study a particular branch of philosophy that he truly loved studying and reading about.

I asked him why he was choosing to put a good paying job over a path that he was deeply personally passioante about that might not necessarily earn a great deal in the near future. He pretty much exploded, offering up a rant about how the world revolves around money and the only way he would ever be able to chase the dreams he has is if he has lots of income.

I couldn’t disagree more. Let me explain why.

First, the need for money in the bank comes down to what you’re responsible for. If you’re fresh out of college with nothing to your name but a car, you really don’t have that much that you’re responsible for. You don’t have a house. You don’t have a partner. You don’t have children. You don’t have an established career to protect.

You just have you, your dreams, your skills, and your potential. Nothing else.

Second, you don’t actually have a lot of day-to-day financial need, either. It’s perfectly normal and acceptable for a new graduate to live in a small apartment or a room in a house. Why? The rent is cheap. You can eat really cheap, too – just stock up on whatever fresh produce is on sale at the grocery store.

The big money that many people often believe they need is for stuff that they actually merely want, and it’s those wants that stand in the way of taking a leap towards a dream.

Thus, your income requirements are very low. You’re responsible for yourself. Just you. All you really need is a place to lay your head at night and food in your belly.

If you can’t find a job doing what you want to do, take on an internship. If you can’t find an internship, ask for one directly from the place you dream of working. If that doesn’t work, just start doing and sharing. Whatever it is you dream of doing, there’s an avenue out there to explore it and throw yourself in with your whole heart.

Since you don’t need much income, get a job sitting behind a counter at a gas station at night. Earn minimum wage and sit there with your notebook open, collecting your ideas and thoughts about whatever it is you want to do. Spend your mental and physical energy building the life you want.

There is no better time in your life to just throw caution to the wind and see where your passion will carry you than when you’re young and free of many responsiblities. If it doesn’t work, you’re not out anything much – maybe a few years, at worst. If it does work, you’ve opened the door to a lifetime of doing what you want to do.

What do you really have to lose? Not much. What do you have to gain? The life you dream of.

Bob writes in:

I’m in my mid twenties, worked doing tech support all through college, and worked out of college as the IT director for a political campaign of 120 staffers. I now have left to a job that fits my interests a little bit better, but clearly still have a lot of IT skills.

I haven’t been doing any IT work on the side, but the friend of a coworker of mine needs some computer help. I’m perfectly happy to help her. What I really want is money, but I feel awkward asking for it. I’m not in debt, I’m pretty healthy financially, but money is preferred just because I want to spend it on what I want, rather than just asking for a general category of gift (bottle of scotch, etc). Any advice on how best to explain that I charge a certain rate and not feel bad about it? (Her fix is pretty easy for someone with my background, hence the guilt)

The best approach in this situation is to decide what you want in advance, then be up front and clear about it. Communication never fails to be a winner in any situation and the earlier you communicate your needs, the better. You should communicate what you want at the earliest possible juncture in this so that there’s never any chance of there being a misunderstanding of the arrangement.

The secondary question, of course, is whether or not you should feel guilty about doing this.

There’s one big thing to keep in mind whenever you provide this kind of service or any kind of service: people are paying you to provide a service they can’t – or are unwilling to – do for themselves. You are providing some sort of expertise or trait that they’re not bringing to the table, whether it’s knowledge of leverage for moving a piano, arm strength for digging a lily pool, or IT skills for solving a computer problem.

To them, the skill you have has value. Quite often, it has significant value.

What value? It doesn’t matter what you think that skill is worth. It matters what they think the skill is worth. That amount is what the person receiving that service is willing to play. In other words, it’s set by the marketplace – if there are fifty plumbers in a city, they all charge similar rates, for example.

Another factor to remember is that you are selling your spare time. That time has significant value – you have a limited quantity of it and it’s often the only time you have for leisure and recreation. When you fill that time with tasks that you don’t want to be doing, you deserve some sort of compensation for it.

Thus, I would check around in the community and find out what the going rate for the type of service you’re going to provide is, then provide the service at that rate or a slightly lower one. After all, that is the price they would pay for that service in the broader marketplace.

You may decide that a lower rate for family and friends is appropriate and, if that’s the case, reduce the rate you charge to benefit that person. Should you provide that kind of rate reduction? That’s up to you, but if you are providing that rate, make it clear up front and on any receipts or invoices you provide just to keep matters clear for the future.

On the other hand, there is some value in providing the service pro bono, particularly if the service isn’t too stressful for you. This can have an enormous social benefit – it often opens the door to a long exchange of value on both sides of the coin, from work opportunities to assistance with tasks and advice. There is a great deal of value in following this path and, quite honestly, it’s probably the path I would follow in this case.

Good luck in whatever you choose.

Every other Sunday, The Simple Dollar reviews a personal development, personal productivity, or career book.

Several months ago, I wandered upon Pamela Slim’s excellent blog, Escape from Cubicle Nation. In a nutshell, the blog covers the transition from working in a cubicle (i.e., a traditional job) to self-employment – and all of the issues in between.

Slim packaged up many of the best ideas into a guide to this transition, also titled Escape from Cubicle Nation. And, since I enjoyed the blog so much, I picked up the book, looking forward to reading what Slim had to say, especially since this is a journey I’ve gone through over the last couple of years.

Here’s the entire thing in a nutshell: if you’re thinking of quitting your office job and doing something on your own, this is your handbook. It’s thorough, detailed, and heavy on the applicable ideas. Let’s dig in.

I Have a Fancy Title, Steady Paycheck, and Good Benefits. Why Am I So Miserable?
Many jobs involve sacrificing one’s core values – you might not necessarily be doing work that you dislike or object to, but the work isn’t in line with what you want out of life. Many jobs are also filled with trifling details that are simply not fulfilling. Work also often involves jumping through hoops for a boss – a process that isn’t clear on how it helps you (or helps anyone). Adding these factors together, it’s not entirely surprising that people are unhappy with their work, even if it’s a “good” job.

If It Is So Bad, Then Why Am I Afraid to Leave?
Slim points toward status, routine, and recognition as big factors, but I think an even bigger factor is a fear of the financial unknown. Many, many people are out there living paycheck to paycheck, deeply fearing the idea that the job might go away. I know that this was my biggest roadblock against taking the leap into being a self-employed writer – I was afraid that the steady money would go away. Security was my biggest fear and it held me in place for a long time.

Detox from Corporate Life
Slim offers six steps that can help a person “detox” from corporate life – in other words, the steps a person should take to reduce and eliminate some of the mental holds that their job puts on their mind. Clear your plate of as many tasks as you can (leaving you some breathing space in your day). Start writing down and tracking your ideas. Get creative and expose yourself to new ideas.

What’s Really Involved in Moving from Employee to Entrepreneur?
This chapter outlines a step-by-step process for making that leap. It’s not a be-all end-all guide, but instead it just outlines a framework that the rest of the book fills in in detail. I think her framework might be too specific – what I’ve found is that often people try out lots of different things, something takes off, and they hop onto the rocket ship. Thus, it’s often useful to look at some of the prep as generally useful – like getting your finances in order – but some of the others are a bit more specific than might be necessary. Instead, just try to seek out your own rocket ship – and the way to do that is to follow your passions.

What Are All the Ways to Be Self-Employed?
It’s really impossible to make such a list, so what Slim does instead is to break it down into a big handful of different factors worth considering. What will you do? Why will you do it? Who will consume it? How will they pay? Who will you do it with? Those factors are very different in different self-employment and entrepreneurship positions.

How Do I Choose a Good Business Idea?
After that chapter, a person’s mind might be loaded down with ideas. How do you choose the right one? Slim argues that a person benefits from figuring out their sweet spot – the point where your talents (what you’re genetically encoded to do), your passions (what you love to do), and what’s marketable (what people will pay you to do) intersect. You can even do it by making a list for each of these three categories and figure out where they overlap. Once you start getting a vague sense of where you’re going, start doing research. What’s possible in that area?

Recruit Your Tribe
The next step to success is to surround yourself with the right people – peers who are doing similar things and mentors who have already found success. Slim addresses how to do this in detail, encouraging you largely to just go where the conversation is, join in, and listen. People are already out there talking about your area and it’s worth your while to start participating, building relationships, and growing.

Rethink Your Life: Options for Scaling Back, Downsizing, and Relocating
What? Frugality? Minimizing your stuff? That’s for losers, right? Actually, frugality is for winners. It’s much, much easier to take a challenging leap if you’ve got a healthy bank account and don’t have a pile of bills coming in every week. If you want to give self-employment a try, minimize. Save some money. Get rid of as many bills as you can. Learn how to live a little leaner. It’s really a choice: do what makes you happy all the time or have stuff that makes you happy during the hours you’re not working.

Do I Really Have to Do a Business Plan?
Many people look at a business plan as some sort of dry, formal step – a pointless document that doesn’t really help anyone and is best avoided. In truth, a business plan’s purpose is simply to guide you through the thought process of making sure all of your bases are covered. Have you thought about your customers? Have you thought about likely what-ifs? A business plan is just a way to push you to think about these vital questions. So, don’t worry about the formality of your document at the end – but think a lot about the questions involved.

Define the Spirit of Your Brand
What are you going to do to stand out from the pack? What’s different about your business, particularly in a field full of competitors? That’s a difficult question for a lot of people. You cannot find success by just copying something that’s already successful. At most, you’ll be mediocre. What did I do different to build The Simple Dollar? I decided not to be snarky or wholly fact-based, but instead to be earnest, something that wasn’t really done in a blog form too much at that point.

Test Often and Fail Fast: The Art of Prototypes and Samples
Once you have your idea in place, try it. Don’t spend lots of time making it perfect before trying it. Instead, throw it out there, share it, get some feedback, and use it to improve. That’s what I’m doing with my podcast. The first few episodes weren’t all that good, but if I hadn’t shared them anyway, the later episodes wouldn’t have improved at all. I wouldn’t have had a good idea of what was wrong.

Look Your Finances in the Eye
What about the money? It’s all about the money, in the end. You need to get a real grip on your financial state – and that means real numbers. Know what you owe. Know what your bills are. Know what you bring in now. Then plan ahead – get rid of those debts as soon as you can, minimize your bills, improve your credit rating, and build a big fat emergency fund. This is all personal finance 101, but it’s worthwhile stuff.

How to Shop for Benefits
The biggest fear when it comes to self-employment for many folks is health insurance. What will I do without employer health insurance? Slim covers options for people in the United States here, but in the end, this area changes so much that you should do your own research. I think the real solution over the long run will probably be a national health care plan – if this is easily accessible and actually decent, people will sign up in droves and take the leap, I think.

Dealing with Your Friends and Family
Many people find a lot of resistance in their lives if they suggest making a major change in their career. Why? In the end, most people resist change in their lives, and your major career change is often a change in the lives of people around you – a change they’ll resist. I was lucky when I made my change that I had a lot of supportive people around me who knew I’d dreamed of spending more time with my kids and writing for a living for a long time, but this isn’t always true of everyone. What can you do? Listen to their concerns, but realize that many of the doubts expressed are actually their own doubts, not yours. Accompany those doubts with a well-thought-out business plan that analyzes those doubts and ensures that you’ll survive them.

Line Your Ducks in a Row
For Slim, this means getting appropriate support around you. A lawyer you trust. An accountant. Possibly a virtual assistant to help with the flood of emails and contacts you’ll get. You’ll face a lot of problems, and having support around you for the less important things lets you focus on the most important things – like how to overcome the problems that are set out in front of you.

When Is It Time to Leave?
Escape from Cubicle Nation winds down by asking the big question: when is it time to make the leap? Sure, there are logistical issues – do you have the money? Do you have the connections in place? Is the business plan ready to go? Have you already started (and is it successful)? But a big part of it comes from inside as well. It’s a major leap – are you mentally ready for it?

Is Escape from Cubicle Nation Worth Reading?
If you’re working in a typical job (employed by someone else) and have ever thought of going it alone or starting a small business, Escape from Cubicle Nation is an essential read. Slim goes through the factors worth considering in great detail, outlining the things that need to be considered and the things that need to be put in place.

My only complaint – and this is a minor one – is that the topics felt a little bit out of order. This is something I’ve been struggling with while writing my own book lately – are the topics really in the best order? I even sat down and tried to figure out how I would change it, but without blowing most of the chapters to bits and reconstructing them out of pieces, I don’t know what I would change. I think the problem is that Slim tackles so many ideas in the book – but is that really a problem?

Look at your own life. If this book matches the journey you’re on, it’s a must read.

An acquaintance from my previous career wrote to me recently asking about the steps I took when I made the switch to working at home:

It’s official: I’m ready to get out of here. I’m tired of working here and I have a lot of people lined up to hire me for home catering and cooking. I’m sure you did a bunch of planning before you made the leap. What exactly did you plan?

I know at least one other former coworker who is contemplating a similar move into a freelancing gig, though his plans are decidedly less clear at this point.

So what exactly did I do during that transition period? I started making a list of the things I did – then, soon, I realized that there were several things I wish I had done. Before I knew it, the email had ballooned into a guide that I thought might be useful to quite a few people.

Here are fifteen things I did (or wish I had done) during the months leading up to my transition to working for myself.

1. Learn to live on less.
One of the biggest challenges of freelancing/self-employment is the uneven pay. Gone are the steady paychecks of a typical job. Gone is the idea that you’ll make roughly the same amount next month as you will this month. During 2009, I have had months that earned only 25% as much as other months – and I anticipate a single month later in the year when several projects come to fruition in which I have by far the best month of the year.

If you allow your spending to match your income, you’re not going to be able to survive during the lean months. Instead, you need to adapt yourself to a consistent lower level of spending. Start looking now for fat to trim from your life. Every expenditure you have that’s not necessary for your basic living standards should come under very careful scrutiny.

Many people balk at this, but the truth is this: your first several months as an independent worker are going to be a real shock in a lot of ways. The last thing you need making this transition more difficult is a bunch of unnecessary expenditures. If things go well, you can always add some expenses back into your life – but you may find, surprisingly, that you’re quite happy without most of them.

2. Create a budget, both personal and business.
As I’ve written before, I’m not a believer in the “one-budget-fits-all” approach. Trying to make your budget or spending match an example provided by someone else is doomed for failure because that example doesn’t match your life.

I argue that the real value provided by a budget is that it reveals, loud and clear, how you actually spend your money and it can provide some clear pointers to where you need to make changes. Prepare a budget by just keeping careful track of what you spend for a month – make a giant list of every dime you spend, then organize all of that spending into categories that make sense to you. When you have that in place, look not only at the total amount you spend (you’re going to need an income level that on average exceeds that by at least a little), but also at the various categories – are there areas that you can cut?

A similar exercise for one’s business expenses is also useful, though it can be more difficult. Seek advice on the expenses that people typically have freelancing in your area of interest and use that for a basis.

3. Build up a big emergency fund.
If you’ve followed steps one and two and made serious cuts in your spending, you’ve now got a nice surplus of money coming in each month. Don’t be tempted to spend it. Instead, sock it all away into a savings account. In fact, do it automatically – instruct your bank to automatically transfer a healthy amount each week into a savings account on your behalf.

If you’ve done your budget, you have a good idea of what your monthly expenses actually are. I recommend having at least six months worth of living expenses in your emergency fund before making the leap. This will help you survive the lean months, particularly those early on in your freelancing experience.

4. Now make it bigger.
Quite often, people go light on the emergency fund before they make the leap. They have a bit of cash saved up, but they’ve convinced themselves that they’re ready – they have plenty of clients and opportunities lined up.

Don’t make that mistake.

The big problem is that freelancers and self-employed folks – especially early on – can have a tendency to count their chickens before they hatch. No deal, no matter how good it is, is a sure thing until contracts are signed and products are delivered. You might have ten potential clients that talk big about what they want to do, but when push comes to shove, all of them could vanish – and many of them will.

Be prepared for that. Don’t leave yourself in a desperate situation if a conversation doesn’t pan out. Cover your bases – and the best way to do that is with a healthy emergency fund. Build it now, build it later, keep it nice and fat.

5. Start reaching out to your audience and client base now.
There is no better time than right now to start digging for opportunities, even if your leap is far into the future. Get out there and start seeking out the people you want to know – and the people you want to sell to.

In a nutshell, this is market research – you need to find out if there are people that will buy what you do and figure out how to connect with them. Obviously, the internet and social media (like Twitter and Facebook) are good places to start, but they’re just a start. You should also go directly to where people who might be potential clients – or potential competition – congregate.

Start finding the people now. Join messageboards. Start Twittering. Start a blog. Pound the pavement in your local community. Dig through freelancing boards and other job boards. If you’re passionate about the field you’re leaping into – and you must be if you want freelancing to work – you have plenty already to talk about. Let the passion flow.

6. Eliminate as many regular bills as you can.
Back on the money side of the coin, start whacking your regular bills, particularly any related to entertainment. Ditch Netflix – if you want to watch a movie, use Redbox or a similar service. Ditch your cable bill entirely – use a digital converter box and Hulu to get your television fix. Sell your car – if you can use public transportation or ride a bike to work, do you really need one?

For the ones you can’t eliminate, trim. Make your living quarters as energy efficient as you can, with programmable thermostats and the like. Cut your cellular plan – do you really need that much data, those minutes, or that many text messages? If you decided to keep cable or satellite, whack some premium channels you don’t watch.

The more monthly bills you can eliminate or reduce, the more room you have to breathe when you make the transition.

7. Write a business plan.
Don’t worry about being too formal when you do this. The purpose of a business plan is to make you think about all of the details of what you’re about to leap into. Have you really thought things through?

Areas to include: market analysis (is there actually a need or a market for what you’re doing), product or service development (what kind of service or product will you actually offer), marketing (how will you draw attention to what you’re doing), financial organization (the money), and risk factors (what problems might crop up and how you might handle them).

Spend some time on this. Include everything that comes to mind, and flesh out details on every point. Don’t sweat the formality – just focus on ideas. The more effort you put in here, the easier it will be to make this all work when things get rolling.

8. Now rewrite that business plan.
Quite often, most freelancers make only a minimal effort at a business plan, if they bother at all. Big mistake.

I suggest using a self-imposed deadline of sorts. Arrange to show your business plan to someone you trust on a certain date for their input. Putting that deadline in place will keep you focused on the project, as you’ll want to present something reasonable.

Then, when you deliver it, ask for feedback of all kinds – everything they can think of that might improve the plan. What you’re really asking for is advice on the work you intend to do. This is a double check to make sure you’ve thought everything through.

When you get the suggestions, use them to rewrite your plan. Then repeat, perhaps with another person who might read it and offer suggestions. A few such repetitions will go a long way towards creating a real plan that works – and making sure you’ve really thought this through.

A good business plan isn’t a boring thing to “waste” your time on. It’s a great way to make sure all of your bases are covered, and often the revision process is the most powerful part.

9. Find a mentor.
So who can you take that business plan to? A mentor, that’s who.

Seek out someone that knows what they’re talking about that isn’t a potential competitor of yours. Look for someone experienced at freelancing in a tangential field – not a direct competitor – and ask them for advice and help. Be specific in your questions and don’t take criticism personally – it’s offered with the goal of making you better, not cutting you down.

Recognize that the person is probably busy and contribute some value to the relationship yourself, by promoting their work or offering them something of value, too. For example, if you’re a nascent blogger and would like to attract a professional blogger as a mentor, spend some time simply promoting their best stuff. Write about it on your own blog and talk about their stuff on Twitter. Buy their book and write a review of it (if they have a book out there). Participate in their comments and in their other conversations online.

Actions like these are ways that you can make a mentoring relationship into a fair value exchange instead of just a “gimme gimme gimme” relationship.

I wrote a detailed guide on finding a mentor in the past that can be very useful reading.

10. Make it easy for people to see the good stuff you can do.
Create an online presence for yourself that makes it very easy for people to find your best work. Regardless of whether you’re doing online work or not, have a website with an easy-to-remember URL that contains links to examples of the best stuff you’ve created. Join social networking services (Facebook and LinkedIn) and make professional pages about yourself that clearly show off your best side.

If people hear about you, they’re going to Google you. You want to make it so that the first things they find are good, positive, impressive things – the types of things that will draw them in, not push them away. Never take the attitude that you can appear antisocial and that if they don’t like it, they can walk – that attitude will push many of your potential clients away because you’ll seem unreliable from the get-go. There is never a downside to appearing friendly and accessible.

11. Communicate, communicate, communicate.
The more you talk, the more likely people are to discover you. Share your thoughts and ideas and comments as much as you can, as widely as you can.

Start a blog. Join social media sites (Twitter and Facebook, for starters). But, most important, join in on conversations. Link to interesting people and ideas on your blog and offer your take. Follow interesting people on Twitter and respond to the things they say. Comment on interesting blogs (with a link back to your own of course) and make worthwhile comments.

Most important, stick generally in your area of expertise, but don’t be afraid to jump into topics that are at best tangentially related. The goal is to make people interested in what you’re doing, and the best way to do that is to always speak from your heart and from your mind. Be positive, put your voice out there, and good things will happen.

12. Build connections with local small business/entrepreneurship groups.
Even if your work is outside of your local community (online work, for example, or freelancing work for remote enterprises), it’s worthwhile to engage with local small businesses and entrepreneurs – after all, that’s exactly what you are. Such groups are almost always sources of good ideas and leads for areas where you might improve, and they’re also places where you can float new ideas and gauge them. Even better, leadership in such groups provides countless ways to reach out and connect to others in countless ways – conferences, meetings, and so forth.

Get involved in peer groups, both in your own physical community and in your professional community – and don’t be afraid to dive right in and participate, even before you’ve made the leap. The number of valuable connections you’ll make there will pay off time and time again.

13. Have a place where you can focus on work – and only work.
Many freelancers start off working at the desk in the corner of the living room – the same one that houses lots of personal material as well. What often happens, though, is that the personal material begins to interfere with the professional work and the lines begin to blur. You find yourself working when you should be engaged in personal activity, and doing personal things when you need to be working.

Find a location somewhere that you can devote solely to your work – no personal stuff. Ideally, it’s a place that you can isolate yourself from the things around you. For example, I have a room in our home that serves as an office. When I need to work, I go in there and close the door and I’m in “work” mode. When I leave that room, I’m no longer in “work” mode (unless I’m headed out to do some research).

Without that barrier, it would be incredibly easy for me to constantly take my eye off the ball – and if I did that, I would constantly find myself falling behind on my work.

14. Build your current bridges as strong as you can – and don’t burn them when you leave.
Many people, as they begin to transition mentally into freelancing, let their current work relationships slide, deciding that they don’t matter. Actually, quite the opposite is true – they matter more now than they did before.

Here’s why. The strong connections you have in your previous line of work will continue to serve you well after your transition. The connections may provide you with new clients and interesting angles to pursue. Plus, if freelancing doesn’t work out, you often have a strong foot in the door for returning to a position in your previous career path.

On the other hand, if you let those relationships burn out, you miss out on these opportunities – and that big safety net.

Spend your final months tying up loose ends, but make sure that the relationships you’ve built don’t fray, either.

15. Practice, practice, practice.
This is perhaps the most useful lesson of all. If you want to be a real standout in your area of expertise, keep practicing at it. Study it. Try new things, and work to get better at the things you already do. In short, practice every single day.

If you’re a writer, write (and share them, via a blog). If you’re a graphic designer, make designs and share them (via Flickr or other avenues). If you’re a musician, practice daily and share demos with the world. Doing this not only makes you better, but it shows that you’re a hard worker and helps you get a better grasp on what people like and what they don’t like.

As time goes on, you’ll get better and better at what you do – and you’ll have a long track record that shows how diligent you are at your work.

A Final Tip: Dig Into Freelancing/Self-Employment Resources and Communities
Here are five websites I visit all the time for advice and thoughts on being self-employed and accepting freelance work.

FreelanceSwitch
http://www.freelanceswitch.com/
FreelanceSwitch is my website of choice for thoughtful and insightful conversation on freelancing and self-employment issues. It’s a daily read for me.

Elance
http://www.elance.com/
Elance is a clearinghouse of freelancing opportunities of all stripes. I like to keep an eye on freelancing opportunities in several areas.

Guru.com
http://www.guru.com/
Guru is a similar clearinghouse for freelancing opportunities.

Web Worker Daily
http://webworkerdaily.com/
If you do computer-based freelancing, this site is a must-read. Again, I read this one almost daily.

Freelance Folder
http://freelancefolder.com/
Freelance Folder offers a ton of widely varied and interesting advice on freelancing topics.

Good luck!

Every other Sunday, The Simple Dollar reviews a personal development, personal productivity, or entrepreneurship book.

It’s no secret to long-time readers of The Simple Dollar that I loved Keith Ferrazzi’s first book Never Eat Alone. I thought it was a brilliant discussion of how to network ethically in the modern world by building real, valuable relationships with people centered on giving of yourself to others. Even though I’m an introvert, I’ve taken many of the principles in Never Eat Alone to heart in my own real-world experiences – and online as well.

While Never Eat Alone does a great job of outlining how to build relationships with a large group of people, it’s fairly self-evident that there’s a lot of value in building particularly strong relationships with a small group of people. These are people you trust and who trust you, wise and insightful and willing to spend significant time with you because you make each other better. Mentors, advisors, friends – all of those titles apply. Most people are lucky if they find a handful of such people in their lives.

Finding and cultivating this inner circle is what Who’s Got Your Back focuses on. How do you find these core people? What traits do you have that will click well with others, and how do you find the traits that will click well with you? How do you maintain relationships with them over the very long haul?

I’m a huge believer in the power of mentors, and I’ve discussed techniques for finding a good mentor in the past. Let’s dig in and see what Ferrazzi has to say on the subject.

One: Who’s Got Your Back
Ferrazzi argues that the need for an inner circle of mentors, advisors, and friends that you trust and respect is something that almost everyone in the modern world strives for – if that wasn’t true, why would things like “life coaching” be such a huge multi-billion dollar industry? Even more disturbing, according to a 2006 study in American Sociological Review, the average person has only two confidants, and 25% of people have none at all. In a ever more complex world, confidants and advisors are more important than ever before – yet people have fewer of them.

Ferrazzi then makes the case for how valuable “lifeline” relationships are, focusing on four ways that such relationships are critical:

1. To help us identify what success truly means for us, including our long-term career plans.
2. To help us figure out the most robust plan possible to get there, through short-term goals and strategies that would tie us in knots if we tried to go it alone.
3. To help us identify what we need to stop doing to move forward in our lives. I’m referring to the things we all do that hold us back from achieving the success we deserve.
4. To have people around us committed to ensuring that we sustain change so that we can transform our lives from good to great.

I know that in my own life, my chief “lifeline” relationship is with my wife, and I constantly talk to her about the things above. It helps more than you can ever know and often guides me towards difficult decisions that I might “chicken out” on if I did them alone.

Two: The Four Mind-Sets
Ferrazzi identifies four “mindsets” – more like traits, actually – that, when cultivated, provide the foundation for building such lasting “lifeline” relationships.

Generosity You have to be willing to give sincerely of yourself without expecting a thing in return. Generosity is the foundation of trust, and trust is what makes such relationships work.

Vulnerability You have to be willing to be vulnerable. Can you move outside your safety zone? Can you accept criticism from others?

Candor You have to be willing to be totally honest with others. If something’s on your mind, you shouldn’t hold it back. It might be valuable.

Accountability You have to be willing to follow through on the promises you make to others.

These four traits are vital for building lifeline relationships – ones where you can bounce ideas freely, receive criticism, and truly grow as a person as well as in your ideas and goals. Others that you build such relationships with must have such traits as well – without them, the relationship is not going to succeed over the long haul.

Three: Building Your Dream Team
So how exactly do you build this team? Ferrazzi identifies a nine step plan for finding these people, cultivating the relationships, and maximizing their value in your life.

Step One: Articulate Your Vision This means soul searching. What do you really want in life? What are your big goals and dreams? What are your interests and passions? What do you really value? For me, my values center around my family and my writing, so if I were looking for people for my own inner circle, I’d want someone that valued family and had some insight into creative careers.

Step Two: Find Your Lifeline Relationships Look throughout your life – your work, your extracurricular activities, your personal life – and identify people who match up at least somewhat with what you want in life. Get to know that person a little and find out if they actually exhibit those valuable traits. Are they committed? Do they have some know-how – knowledge of what they’re talking about? Do you get along well with them? Are they curious by nature? If you see a lot of these factors, you’ve got someone very promising.

Step Three: Practice the Art of the Long Slow Dinner Gradually get to know a potential lifeline quite well. Have a lot of meetings with them – lunches, dinners, coffee. Talk about anything and everything. Feel them out. If it’s right, you’ll know it – if it’s not, don’t be afraid to move on and try again.

Step Four: Broaden Your Goal-Setting Strategy The first real way to get your lifeline friends involved is to talk about the goals you have – and the goals they have. Offer candid input on their goals, and invite (and accept) their candid comments on your own goals. Develop new goals together – and talk about how you can get there.

Step Five: Create Your Personal Success Wheel The “personal success wheel” is a wordy way of describing the key areas in your life that you want to succeed in. Financial success, spirituality, giving back, physical wellness, intellectual stimulation, deep relationships, and professional growth are areas that Ferrazzi mentions that are common to most people. Ask yourself what you’re doing in each of those areas – and bounce your thoughts off of those people in your lifeline. Similarly, encourage them to do the same – think of their core areas, ask themselves what they’re doing in each, and bounce their thoughts off of you.

Step Six: Learn to Fight! In other words, you have to be able to (and be willing to) diasgree with people in your inner circle. More importantly, you have to be able to debate ideas without making it personal – Ferrazzi calls this “sparring.” The key is realizing right off the bat that you’re just comparing and analyzing ideas, not attacking each other, and you can both grow from this process.

Step Seven: Diagnose your Weaknesses Introspection is a key part of all of this. You have to be able to not only figure out your weaknesses (and Ferrazzi gives a lot of tips for this), but be able to reveal and discuss those weaknesses with others, along with strategies for overcoming that weakness (or turning that weakness into a strength).

Step Eight: Commit to Improvement Steps four through seven are going to give you constant ideas on how to improve your life (and, along the way, give the others in those relationships with you tons of ideas as well). In order to actually get something out of it, though, you have to be willing to commit to improving yourself. You need to take at least some of those ideas and actually implement them, making yourself better, or else you come off as very insincere. Doing is much more valuable than talking.

Step Nine: Fake It Till You Make It – Then Make It Stick Ferrazzi’s big point here is that practice and repetition are vital. All of the steps above are ones that you should be constantly repeating. All of the ideas generated should constantly be worked on. They should just become a part of your life – and they easily can. Why? Because those “lifeline” friends will eventually become your closest friends – the foundation of your life.

Four: Make It Your Life
The final portion of Who’s Got Your Back picks up where the final point leaves off. The ideas in the book aren’t just a one time process, but elements of a successful life. Ferrazzi offers several worthwhile points to cap off those ideas – here are three.

A group of like-minded people is a great place to start. If you don’t know where to start, look for an already-existing group of like-minded people that share your interests. If you’re an entrepreneur, check out local small business associations. If you’re a parent, look for PTA meetings. Find people that share your passions and you’ll have a great group to start with.

Forming an actual group can be quite scary. Ferrazzi suggests several approaches, but the real foundation is the people. Your best bet to make a group work is to try to cultivate the relationships between people you have lifeline relationships with. If you can get, say, four people where every person has a one-on-one relationship of this kind, that group will be invaluable to all of you.

Suggestions are invaluable. If you have an out-of-the-blue idea that really fits a person you have a lifeline relationship with, write it down and treat it with the weight you would treat a great idea for yourself. If you’re doing this for each other, it’s like having two or three or four minds out there trying to come up with great ideas to push you farther.

Is Who’s Got Your Back Worth Reading?
To put it simply, I loved this book, too. The material in here applies well to virtually everyone, particularly people who are somewhat introverted who may need that extra push to build strong life relationships (I’d put myself in that group). What appeals to me, as with Never Eat Alone, is that everything is underlined with giving of yourself. Paying it forward is a strategy that has never, ever failed me in life.

This one is already on my re-read pile. I plan to let the contents of it sink in for a while, then give it another read-through in a few months.

My only criticism is similar to the criticism I had with Never Eat Alone, but it’s one that I understand. Ferrazzi has a tendency to name-drop in places. My interpretation of it is that Ferrazzi is actually much like myself – he’s an introvert who has to work on being an extrovert, and being able to drop those names makes it easier. I do a similar thing, to be quite honest – I tend to talk in big bursts when I don’t know someone well. I’ll be quiet for half an hour, then drop a two minute wall of words. It’s something that comes up as a result of my natural introversion – and it’s something I’m aware of and try to work on.

Put this on your Amazon wish list or your library list. This one’s really good.

Every other Sunday, The Simple Dollar reviews a personal productivity, personal development, or entrepreneurship book.

Discover your passions and make a living from it.

It’s an idea I talk about quite often on The Simple Dollar – and it often gets pooh-poohed by people who believe strongly in work-life separation, that you should do a job that maximizes your income for your effort. My belief is that you can reach that same point and enjoy yourself along the way by following your passions.

Others argue that their passion isn’t possibly something they could earn an income from. For those, there’s Craft Inc. by Meg Mateo Ilasco.

The idea behind Craft Inc. is simple: you like making something, but you have very little understanding of how you can translate it into a business. Although the book focuses specifically on crafts (with a layout that reinforces that idea), it’s actually a great side business starter book no matter what you want to sell.

So what’s inside the covers? Let’s dig in and discover something interesting.

1 – Your Creative Mind
Many people have the spark of a great creative idea within them, but they bury it behind myths that aren’t really true. “I’m too old” is a myth. “I’m not an ‘arty’ type” is a myth. “I’m waiting for the right time” is a myth. “I need to do this full time before I start” is a myth. Don’t let myths hold you back.

The best way to get started is to simply do it. Spend some time every day practicing your craft. Keep track of interesting ideas. Find a place to work that makes you feel creative and energetic. Most of all, share your dreams with others – tell them what your wildest dreams are related to your craft.

2 – Your Business Mind
The first step in translating the craft you enjoy into a business that can make money is developing a business plan. Craft Inc. offers a great framework for doing this, identifying all of the key elements you need and discussing some in detail. More importantly, it outlines why you need to do this – more than anything, it’s a powerful way to get all of your ideas in order and make sure all of your bases are covered.

Do you need to file for trademarks? Maybe, depending on what you’re doing – and the book provides a brief guide. Do you need to file paperwork to start a company? If it’s just you and just a side business, probably not – a sole proprietorship will work at first. Where should the seed money come from? Your best bet is likely living frugal and saving up that initial investment yourself.

3 – Your Personal Style and Your Products
A boring product doesn’t sell. How can you be sure that whatever you’re making will leave a lasting and positive impression?

First, don’t try to please anyone – instead, focus on pleasing yourself. Create things that you like. Package them in a way that you like. If it’s not appealing to you, don’t do it – look for a different approach.

Attend trade shows and craft shows for ideas. That doesn’t mean you should copy the ideas you find, but having lots of input will help you figure out elements that work for you – and elements you should leave behind.

Keep a notepad with you at all times to jot down ideas and things that you observe that you like. Record those ideas as soon as they come to mind so you don’t have the chance to forget them.

Set clear goals. Figure out what exactly you’re working towards and what your next step is, then focus in on that next step. Don’t sweat the mountain before you – focus on getting the next step right.

If you need help with specific elements, ask for it. Ask people who are already doing these things (or similar things) how they handle that area. Don’t be afraid of the fact that you can’t do everything yourself.

4 – Production and Pricing Plans
Scaling up a hobby that you enjoy is tricky. Initially, you’ll try to price an item based on the work put in and raw materials invested in a single item, but often that price is too high to sell. So you have to lower it. Plus, you’ll start seeking supplies in bulk (reducing your cost per item) and rethinking everything about what you do.

The biggest step for most nascent businesses is to rethink the production of the items. You might have a great procedure down for making one quilt, for example, but there might be a much better strategy if you’re attempting to make twenty quilts.

In my own experience with The Simple Dollar and my other writing endeavors, I had to make the same transformation. It wasn’t simply enough to just write when I felt like it or to write one piece at a time. I had to organize ideas, schedule my writing, and plan ahead instead of just doing things as they came along. That change made my writing vastly more productive.

5 – Marketing and Publicity Strategies
Once you’ve got the manufacturing part in line, you have to start finding customers (and hopefully lots of them). Craft Inc. advises you to be your own publicist, especially at first. Start a website for your business (and spring for a good design and your own domain name). Start a blog and update it regularly, just writing off the cuff stuff – don’t worry about hard-selling the product.

One big key: take good photographs of your products. Try lots of things and take plenty of shots until you find ones that really make the product sparkle. The photograph of the product is often the first impression that people get – and a good first impression can often clinch the sale.

6 – Making Sales and Order Fulfillment
So, how do you actually make the sale? Craft Inc. makes the sensible recommendation that you should start in situations where others handle at least some of the mechanisms of salesmanship for you.

First, sell online. Sites like etsy are great places to start if you’re making handmade items. Another strong tactic is to try consignment – putting your items in a shop, but you retain ownership while the actual shop either gets a flat fee or a cut of each sale. The best way to get started on that is to simply start talking with appropriate shops.

The next step usually revolves around craft fairs, which is a great platform once your business is taking off. Craft fairs help you make connections with shop owners, directly sell to customers, and network with others doing similar things.

7 – Ups, Downs, and Next Steps
Craft Inc. closes with an “odds and ends” chapter, covering several topics in brief. How does one deal with knockoffs? How does one deal with burnout? When is it time to quit? How should you be reviewing your business? When is it time to expand, particularly when you need to outgrow the spare space in your home?

I was particularly intrigued by the discussion on burnout. The big key for avoiding burnout is to focus on the areas that made the hobby interesting in the first place. That may mean delegating some of the activities – quite often, burnout is a sign that you either need an employee to handle the drudgery or you need to rethink the whole business plan (change prices, find new suppliers, etc.).

Is Craft Inc. Worth Reading?
If you’ve ever had a hobby and thought about whether or not you could turn it into a business, Craft Inc. is a wonderful handbook to help you get started on that path. It offers a ton of great advice on transitioning something that’s just a hobby you’re passionate about into a side business – or even more. I’m a big believer in following this path, guiding your passions into a channel through which you can earn a living.

Having said that, I think you need to bring some significant passion in the door to make the ideas in this book work. If you don’t have a hobby you’re passionate about, Craft Inc. won’t help you get there – instead, it helps you translate a passion into a side business.

Craft Inc. is a very worthwhile read if you’re interested in following that path, even if your passion isn’t directly related to crafting. Most of the advice in this book applies well to any passion that you might want to translate into a business.