Instead of just having one goal based on net worth, I’m finding it increasingly important to have my eyes on another prize. I want to have enough income coming from places outside my day job to cover all my typical month expenses. This way if I get downsized, as I did when the Internet bubble bust, I can get by. This may sound like a doomsday scenario, but as we are a two income family, I don’t expect it to be the problem that it once was.
Here are my preferences for alternative incomes:
- Passive income such as that from bank interest is ideal. This requires no time or effort on my part.
- Incomes such as that from that my investment property is very good. This requires some maintenance on my part, but it’s not daily.
- Incomes such as that from this blog is fine, but is still good, but less valuable. It does require significant time for the money, however, since I enjoy it and can do it while watching TV in my underwear, it’s good quality.
- I’ll add other ways I can earn alternative incomes here as I think them up.
My current revenue streams:
- Prosper.com – I’m a big believer of this site because I thought it up back in 1999. There’s just too many middlemen in banking. There’s too many in real estate as well, but that’s changing too.
- Bank Interest – No explanation needed on this one, but in general, I think I can do better in Prosper.com.
- This blog – I’d do better working at Starbucks or Wal-Mart, but it still qualifies as an alternative revenue stream.
- My investment property – This may not actually be an “investment” for quite some time as I’ll lose $550 a month in the first year. However, I’m taking a long term view of things.
I can attack this goal in two directions, bottom up or top down. I can increase my alternative income streams or I can reduce my expenses. I hope to do a lot from the bottom up and a little from the top down. There is only so much I can slice out of the necessary expenses. One big one is my HELOC, which I used to ask my fiancee to marry me. Some may condemn HELOCs, but that was one of the best decisions I made. Even from a financial perspective, we each save a lot more money living together than we did separately.
Here are my monthly necessarily expenses are:
$1,049 – Housing (including my current rent and mortgage on investment property minus the incoming rent)
$325 – Transportation
$143 – HELOC
$125 – Groceries
$43 – Internet + Cable
$27 – Gas and Electricity
$30 – Cell Phone
$25 – Property insurance
$7 – Home Phone
$1,774.00 – Total
My current alternate income (after taxes) from the aforementioned services:
So I’m only 0.96% of my way there – this is going to be quite the journey.
The best thing you can do is maximize what you can put in the bank, then take some of that and invest it in a dividend-bearing mutual fund. I have been doing this for a while now (50% in the bank, 50% in the fund of what I can save each month) and it’s starting to really become solid. I couldn’t live on it yet, not by a long shot, but some frugal living and putting my money away carefully is beginning to show a real income stream.
Be patient and save where you can – that’s the best advice for building a secure long-term passive income stream.
I want to reinvesting my dividends at this point in life. I’m far enough from my goal that I want to put that money back in to work for me. Perhaps with something like ShareBuilder or Zecco, I could buy more shares each month as the dividend is sent out. I think I’d rather just invest in something that doesn’t pay as many dividends and add to it for 10+ years. At that point, moving it to something that pays dividends would be significant.
Banks aren’t going to give me the return I’m looking for to reach my goal any time soon. This is why I’m looking at Prosper. Sure there’s more risk, but it’s diversified amongst more loans, and the reward is bigger. I’m getting a 17+% return on my investment after adjusting for risk according to Eric’s Credit Community. With the amount that I want to invest, I’m not going to be able to be as picky, but if I can get a 14-15% return on investment, I’ll be very, very happy.
I’m just not a very conservative person with my investing.
I’ve heard about Prosper, but never tried and the main reason was I am not sure how accountable those people who are seeking loans are. Of course, the higher the risk, the potentially higher the return, but I am not convinced that Prosper can be a reliable income generater. If it is so good, why there aren’t many people doing it?
I agree with Trent that a long term success in investing requires patience. A 14-15% return in short term is possible, but not in the long run.
Jane Dough says
I agree that diversifying your income stream is very important. However, just as it takes time to build a career and make a good wage at your day job, building alternate income streams also takes time.
Rental income is great and is my primary alternate income source. As you mentioned income from saving account interest also trickles in. Blogging is my least profitable stream of income. Selling items on eBay brings in some scratch.
Having also gone through a period of unemployment during the dot.com bust I tend to still keep my monthly expenses low enough so I could survive for awhile on my rental income and unemployment checks.
I have not tried the Prosper path. One of these days I will take a serious look at that site.
Sun, I think you answer your own question – the reason why many people aren’t trying Prosper are that they are afraid of the risk involved. I think it’s still too new for a lot of people. Ebay didn’t have a ton of people buying in the first 8 months either.
I’m not really sure that 14-15% long term is likely. Once more lenders join the site, like anything, it should be a more efficient marketplace. However, I’m hoping for the next year while people are still cautious of Prosper, I will be able to earn that.
Jane, I was caught in the same tech downturn after the dot-com bust. I was out of consistant work for most of a year. That’s a large part of my motivation for being able to cover my necessary monthly expenses.
Right now I’m losing money on my rental. Overtime that will change as I’m able to raise the rent to keep up with inflation. As for selling items on Ebay, I wouldn’t consider that an alternative stream of income because I’m giving up a tangible object.
Indeed, the question is whether or not that 14-15% return warrants the risk involved at Prosper. In addition, even with 15% return, the size of the loan needs to be large enough to generate any meaningful income. I can accept the risk with a small amount, but not for anything more than $2000 and the 14-15% return will be too low for a loan of $5000 in my opinion. I can find a lot of alternatives (for example gold) that give you higher returns, but much safer than lending a big chuck of money to a total stranger. Just my opinion.
My actual average loan is over 22.50% now, but risk-adjusted (they provide tools to assess and at least roughly quantify risk), it’s 17+%. So when I say 14-15%, I’m factoring in some extra risk to what they already suggest. Eric’s Credit Community gives you a good idea of expected ROI. If it was 14-15% without risk accounted for, I would definitely invest in other places.
Secondly, lenders spread your loans to many people. For instance, I have 25 loans in $50 increments. So I don’t have a big chunk of money with a total stranger. I’m diversified amongst many total strangers. I plan to continue to add more strangers. However, I suspect at some point it will be difficult to find more suitable strangers and I’ll have to start lending in $75 and $100. I’m hoping that day isn’t for some time.
I’m pretty bearish on gold. I’m 30 years old, so for a long time that I’ve been following it, it’s been a poor investment. Now that it’s high, I’m looking into it less. Plus I think the value of gold is different in the future. There’s very little I can do with a chunk of gold. I know it’s still a great conductor of electricity, but mostly people want it because it looks pretty. I think other metals look just as pretty. So I’d rather have the equivalent value in oil or corn. Oil can power cars and corn can be eaten.
Jane Dough says
Hi Lazy Man,
You are right – the rental does take time. My investment condo is now a nice cash-flow positive investment, but I have owned it for 10 years. I lived in it for 5 years first – so I was lucky, but the time I was ready to move out and get a renter the market was in my favor.
As for eBay – I am not sure how to classify it. You are right – you do exchange an object you own for cash. But if it is an object you purchased for say entertainment purposes, you have finished with it – which is better? To keep it on a shelf or in a drawer or to recoup as much of your initial outlay as you can? Also sometimes the object has appreciated in value – so you sell it for more than you initially paid for it – again, it is something you used, but don’t need to hold onto.
I use my books as an example – I am addicted to reading and tend to accumulate a lot of books. If I kept them all I would quickly fill boxes and clutter up my house. So I periodically sell them on eBay. Sometimes I am surprised, and a book will sell for more than I initially paid. I will continue to buy books and read – it is a matter of keeping them until they become worthless, or turning around and selling them and recouping some of that cost.
Jane, have you every thought about selling the condo and investing the money elsewhere? While my fiancee is thinking of doing that with her property which is cash-flow even at this point. I think she’s better keeping it, but it probably does warrant discussion.
I think it depends on what you sell on eBay. I’ve sold some things that I bought at full price, used once, and then sold it at ebay more or less new.
I’m not much of a reader, but if I were I would try to take advantage of libraries and ebay to buy books used to begin with. I’m sure you do that though.
Where do you live that electric is only $27 per month?
Good eye Vincent. It’s really an estimate based on the first 8 days of living in San Mateo county. It might be a little understated because we might not have had everything unpacked and plugged in on the first day. In fact, I’m sure it will go up, but I recently moved across country and right now that bill is the only sample size that I have to go on.
That said, my fiancee and I both work full time, so during the day there’s very little usage then. We haven’t turned on the heat (and there is no air conditioning). Considering the coldest it gets to is about 50, according to the locals, we might not turn on the heat all year. We are used to Boston’s cold winters, so it should be a lot better. Also, the number represents only 43% of the total electricity because My fiancee pays 57%.
Hi there.. Mr. Lazy Man,
I’m very impressed with your blog… In CA, we have a bottle and can deposit… makes it easy to gain a few extra bucks in the savings. My kids and I collect the bottles and cans at their school and after tennis practice as well as whenever we see one tossed along our dog walks… We’ve saved $615 since last year just collecting and turning in them for recycling.
We also invest all found money in Real Estate Investment Trusts… We’ve found over $100 per year the last six years.
You can check us out at: http://www.foundmoneyjar.blogspot.com
Andy, thanks for stopping by. I just moved from MA to CA and I’m trying to figure out this cash redemption value (CRV) thing. Back in MA, you take the can back to the store where you purchased it and you’d get a nickel. It’s easy and makes sense to me, but I don’t know how to redeem for CRV.
When I was little my dad drove me and brother around to gather cans to redeem. We redeemed enough to make it possible for my dad to buy an IBM PCjr, my first computer. I’m a software engineer today because of that.