Extra Side Income Is More Than You Think!

It’s true, extra side income is more than you think, let me explain…

My friends underestimate the wealth accumulation advantages of side income.  They think that since they already work a full-time job, that’s plenty if not too much work already.  So for the most part they go home and then what do they do?  Mostly they watch reality TV?!?  They sit glued to the TV and before you know it, it’s time for bed.  Now granted they are usually watching with their significant other, but still the net gain from a financial or educational perspective is pretty close to nil.

What if instead they went and decided to pick up a side job where they interacted with people and got away from both their dwelling and the TV set?  The win would be twofold, first they increase the amount of money they gain, and secondly, they interact with people, which is usually a positive experience and if not that, then at least interesting.

Cash in Hand

House Working Part-Time?

 

Why extra side income is more:

Side income has the potential of really adding up since your basic expenses are already covered.  The key is that any additional income you gain above expenses can be used to purchase assets (which in my case are investments in the financial markets, but mainly stocks).  The spread between your income and expenses is called the savings delta and this spread can really make a huge difference in wealth accumulation

The thing is that an additional savings doesn’t have to be capital-intensive.  You don’t have to create a manufacturing business to generate a side income.  It can be gig as easy as selling on eBay, or perhaps blogging, or even mowing lawns.  The key is that since that money isn’t required to fulfill an expense requirement, it unallocated money that can be used to buy assets (yay).

This is why I claim that extra side income is more than you think.  Since the extra income can be invested, it can grow into a wealth snowball that has endless possibilities.

Anyway, these are the ways that I see side income being worth more from a wealth perspective than income that is already accounted for.

Bests,

Don

My Personal Finance Pyramid Update – Lower (Upper Middle Class)

My Personal Finance Pyramid

If you have read this blog in the past, you know that I created a visual chart to gauge my personal finance progress as I climb a wealth pyramid that I have created.  The pyramid (based off of Maslow’s Pyramid of Needs) seemed to be a great representation of such a wealth-pursuing journey.  In many ways, it helps me visualize the various levels and created milestones for me to watch for, since I love feedback!  So without further ado, here is my update on my progress climbing my “Personal Finance Pyramid“!

I have obtained the level of Lower “Upper Middle Class” status!  sort of…

Financial Pyramid

You are probably wondering why I wrote “sort of“.

Well, during the run of the stock market after “The Great Recession”, I managed to climb up to the lower green bar of the “Upper Middle Class” status area.  But now since the stock market has dipped again, I’ve fallen in the upper portion of the Asset Accumulation level again.  Close to “Upper Middle Class”, but not quite.

Upper Middle Class is actually a tricky category to be placed in since it’s more than just wealth and income.  In my part of the country, currently I fulfill those requirements… but the standard of living is lower where I live vs a larger city like New York.  As for eduction, I believe I fulfill those requirements, but barely.  No fancy ivy league schools in my past college life.

Another reasons I consider my family “lower upper middle class is because we live at a more frugal state than others in my city with comparable income.  But that said, many of my neighbors make a similar amount of income, so I’m not that far off.  My house is just a little over 2,000 sq feet though, so it’s smaller than the norm is these days.

Now for the Upper Middle Class lifestyle versus my current “middle class” lifestyle.

I have and do a lot of the same things as the upper middle class does, but instead of a Lexus I have a Toyota Camry.  And instead of taking vacations overseas, I still go on entire family vacations typically to the beach.  Oh, I could afford to take overseas vacations, but I would like to build up my dividend stream first to fund such activities.  Besides, I’m still growing my Wealth Snowball that was created in the Asset Accumulation level.  I guess lower “upper middle class” would mean that I have one foot in the Asset Accumulation level, and one foot in the Upper Middle Class level.

What financial numbers does it take to be considered the Upper Middle Class?

  • Household Income of over $100,000 (or for an individual to be at or above $95,000 in year 2012).  Update (2013): I’ve recently read that a good starting number is around $120,000.
  • Net Worth of around 500k+  (at least in 2012)

Anyway, that’s my assessment of my current state.  If the market keeps dipping though, there is a good chance that I’ll slip entirely back into the “Asset Accumulation” phase.

I hope the stock market has been more gentle with you than it has with me lately!

Bests,

Don

 

 

My Secret Wealth Goal

Okay, obviously this isn’t going to be much of a secret wealth goal soon, but here it is anyway…

My “Secret Wealth Goal” is to have a Net Worth amount that is larger than the total amount of my “After College” income amounts for each year that I’ve been working.

An example would be if you worked for five years after graduating, and had a salary that was 20k for the past five of those years, your “After College” total amount would be 100k.  So if you invested those past five years too, and your Net Worth was 50k, you would be 50% of the way to accomplishing my secret wealth goal.

sunshine

Now in my case, my “Net Worth to Accumulated SalaryRatio is 37.4% (my house equity isn’t included in my net worth number).   While the 37.4% is nice, I’m more excited that my yearly investment amount is growing fast each year!  This year’s investment return plus the amount I contribute to my 401k, Roth IRA, regular brokerage account and “side income saved” should come to over 70% this year.

Obviously a more immediate wealth goal is to have my “investments plus contributions” vs my current “earned” income ratio be greater than 100%.  Until I cross the 100% threshold there is no way that I can conquer the “Net Worth to Accumulated Salary” Ratio.  Much like my mortgage payments milestones, I’m thinking of creating another milestone spreadsheet to track both of these goals.

Seems like an impossible goal huh, but it’s not.  As my investment income keeps increasing, there should be a turning point where my investment and contributions amount will pass my salary (earned) income.  While it will be an awesome day when my investment and contribution amounts surpasses my salary income, the big goal is when my investment amount surpasses my accumulated salary income.

Much like a “coming of age” test, at this crossover point I should be financially independent!

Bests,

Don

Progress On Financial Independence – Still Swimming to Shore

I’m totally debt free and I wrote an article about it called “Stop Drowning in Debt, Start Swimming To Shore” and then in a follow up article called “Progress on Achieving Financial Independence – Swimming To Shore“.  And now, I feel like it’s time for an update on my process towards financial independence yet again!

Cash in Hand

Right After Being Debt Free

At first, It was incredibly exciting being debt free, but also sad in that it wouldn’t be easy like it was when I was climbing upwards out of debt.  Now I know many of you think that debt is a hard thing to conquer, and admittedly, it’s not easy, I consider it easier because the payment are easy to record and predict when it will be paid off in a spreadsheet and for the following reasons!

  1. While I invest in the stock market, when I paid off my house mortgage  and car loans, the market out-and-out sucked!  In my 401k, my balance was down considerable and nobody want to invest money in a market that might be down for ten or so years…
  2. There was the risk of slipping back and going into debt of other sorts.  What if I lost my job during the “Great Recession”?  Or I decided to slip and reward myself for accomplishing the feat of being debt free?  It’s a slippery slope to slide down and be in debt again!
  3. At first the time I put in managing my increase in money from being debt free meant that such time would be less than minimum wage… Hmmm, actually it was really less than a dollar per hours for time invested.   Plus all I know to do then was invest the money in the stock market (which I was already worried about), or invest it into side businesses.

Needless to say that figuring out what to do with my money (albeit small at first) was a challenge in a difficult time.  I think if the stock market was still rallying like in the past years, the options would have been a lot easier.

Finding My Financial Path

Since the financial markets were such a mess, I did decided to at least invest some of my excess money in the stock market.  Now this might not make sense, but when the market is down and everybody is pulling out their money out to save their financial nuts, this is the best time to put your money in!  As Warren Buffett says, “Be greedy when others are fearful, and be fearful when others are greedy“, so if the market is down 40%, according to his investing philosophy, it was a good time to invest.  And since he himself was investing in the market at low levels at the time, how could I doubt the greatest investor of current times?

So I increased my 401K contribution and channeled some of my money into the stock market, knowing that Mr Buffett was doing the same!  There was also other saying that made me look at a different path, and those sayings were “Only Fools rush in”, and “Don’t put all your eggs in one basket”.  These sayings are good old common sense and have a lot of merit!  So instead of just investing my money in stocks, I also started thinking of ways to generating money with side businesses.

At first, the stock market kept declining and my side businesses wouldn’t be considered worth it if one looked at my hourly rate (I made a grand total of $5 for the first 5 months).  But I stuck to it and both my investment and businesses improved with time and patience.  While neither the stock market or my side businesses income streams are currently enough for me to retire or quit my day job, I’m now projecting (and hoping really hard) that I’ll be able to walk away from my primary “employed” job in five years if I want to.

Only time will tell, but hopefully in five years (sometime in the year 2017), my “employed” income stream will be optional and you’ll be reading an update about how through carefully planning (and perhaps a little big of luck) I’m at the point where I can quit my “employed” job if I choose to do so.

Bests,

MR