I’ve been extremely busy the past couple of days. Last night, I was home from work for about an hour before I had to get up and repeat the process again. What’s been keeping me busy? There’s a word deadline Monday, leading me to work more than usual. However, the bigger issue is sports and time zone differences. I only get to see the Red Sox when they are on national TV as they will be for the playoffs. Major League Baseball had the brilliant idea of scheduling the Red Sox / Caliangelesheim Angels game at 6:30PM Eastern – an hour earlier than usual. This means that many Angel fans will miss the game completely. It would be absolutely silly to put the team with the best road attendance and a team in a major city like Los Angeles at prime time.
I know you are probably thinking, “Where is this rant going? Why should I care?” When you break it down, this is simply an example of something that’s important to me. I would love the freedom to work my own hours, but financially I’m not able to do such a thing. There’s a lot written about passive income and alternative income (I can’t call my extra income passive) and this is a great reminder why it’s important. This is also why when I have a small windfall, like I mention yesterday, I mentally try to break it down into passive income terms. Here’s an example:
Let’s pretend that my windfall was for $2500 after taxes – remember, we are talking about a small windfall here. I usually calculate that I can invest that money the stock market and make around 9% a year (using history as a basis). I then subtract inflation (assuming 3%) and investment fees (very small since I would use index funds and commission-free ETFs bought through Zecco). This gives me a number of around 5.5% that I might realistically expect in gains from the $2500 – or $137.50 a year. Of course I have to pay taxes on this income, so I subtract out 25%. This may be lower or higher than actually, but as an example it’s close. This leaves me with $103.12 in investment gains for the year. I break this down by the month and realize that $2500 translates to approximately $8.59 of today’s buying power a month for the rest of my life.
For those who want a shortcut in the math, here you go. Simply multiple the expected gains after inflation and fees (0.055 my case) by the amount left over after taxes (0.75 in my case) and divide by 12. For me, that number is .0034375. So if you start with $100,000, it should generate around $343.75 in gains a month.
I’m sure that $8.59/mo. doesn’t seem like a lot compared to $2500. However, remember that this requires no work from you. If you are careful with your finances, it should continue forever. If you re-invest the money, it continues to grow faster earning more income for life.
My Red Sox story may have a happy ending. My company is a little flexible in the hours that it has. It’s a little unusual to go home at 3:30PM, but in a rare circumstance, people do it. It still feels uncomfortable for me to ask about shifting hours, even if I’ll be working the same amount. The looming deadline on Monday make me concerned that if I slip, I’m going to hear about it for some time… and there’s still a lot to do.