Beating Broke

Personal Finance from the Broke Perspective

Are You Leading Your Finances?

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This last weekend, I attended a young professionals conference.  As you can imagine, a large part of the conference was spent talking about leadership.  One of the speakers was legendary basketball coach Dale Brown.  One of the breakouts was entitled “Visionary Leadership”.  I’ve also just started reading the book “Entreleadership” by Dave Ramsey.  In all of those places, there are lots of buzzwords that describe leadership, and what a leader is.

Of course, this being a personal finance site, my mind couldn’t help but apply as much of it as possible to personal finance.  When we think of our personal lives, we rarely apply the word leader to any aspect of it.  We apply it to ourselves and others in our work and volunteer lives, but not our personal lives.  Why not?

When it really comes down to it, we are the leader of our lives.  We are the ones who apply the same principles that leaders apply to business and volunteer organizations to our lives.  Or don’t.  We try and become better leaders at work.  We expect better leaders to lead us.  But rarely do we try and become better leaders in our personal life.

Leading your Finances

Leading Your FinancesPersonal finance aren’t all that much different from a business and a business’ finances.  We still have income coming in, expenses going out, and the profit left over.  Unfortunately, for many, that’s where the parallels end.  Let’s change that.  Let’s apply some of those leadership principles to our lives.  Specifically, let’s apply them to leading your finances.

Financial Efficiency

Business leaders are always looking for ways to make their business and employees more efficient.  Over the years, businesses have foregone the paper and pen and replaced them with computers.  They’ve replaced old marketing tactics with websites and social media.  Leading your finances means finding, and embracing, new ways to make your finances more efficient.  Forego the old check and envelope method of paying your bills and sign up for bill-pay.  Or automate your bill paying by setting them up for auto-pay.  Find ways to save that also create income.  Look into better rates at better banks.  Learn about dividend investing.  Learn about peer-to-peer lending.

Financial Opportunity Seeking

Many of today’s biggest and brightest businesses wouldn’t even exist today if their leaders hadn’t been continually opportunity seeking.  If all Apple still made was computers, it wouldn’t be the multi-billion dollar company that it is today.  If Steve Jobs hadn’t seen the opportunity in the iPhone, iPod, and iPad, they’d be just another company making computers.  Apply the same to your finances.  Peer-to-peer lending hasn’t always been what it is today.  There was a time where it was still a fledgling opportunity.  A small percentage, relatively, of the population saw the benefit of it as an investing avenue, and, for most, their finances are the better for it.  Be open to services and products that can help you make your finances better.

Continual Financial Improvement

Good enough is never good enough for a business leader.  The only thing that stays the same is their desire for improvement.  Beyond always seeking opportunity, we must also always be finding ways to improve our finances.  We must always be assessing the risk involved with those new opportunities, and making decisions on what will best improve our finances.

Financial Failure

Businesses fail.  If they have good leaders, they only fail momentarily and spring back stronger than ever.  They’ll have set the company up to be diversified so that any one failure shouldn’t be enough to ruin the company.  Investors talk all the time about the importance of diversifying an investment portfolio.  But, it can be applied elsewhere in our finances.  Having all of your money in one online bank is great.  Until your internet goes down and you can’t get to it to bill pay.  Diversifying to have a set amount of cash available in an emergency can help you out there.  Not depending on just stock investments is another great way to diversify for failure.  Prepare your finances so that an opportunity that fails only sets you back, doesn’t bankrupt you.

How can you improve your finances today?  What opportunities can you learn more about and assess for use in your finances?  What efficiencies can you create to make your finances better? What other leadership qualities can you apply in leading your finances?

Why I Like Passive Income

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When you’re in debt, and trying to escape from the cycle of debt, the one thing that seems to dominate your every thought is paying off that debt.  Far too often, those of us who talk about debt and finances regularly tend to focus on debt as well.  We focus on paying off debt, eliminating debt, and ways to spend less money so you free up more money in your budget to pay off that debt.  What we don’t talk about often enough, in my opinon, is making more money.  In many ways, increasing your income is just as important to your fight against debt as staying disciplined in paying your debt off.

I don’t know about you, but I often feel like my income is capped.  In any job, you are either paid a yearly salary, or paid an hourly wage.  In that way, you’re income is capped.  If you’re paid on a salary, it doesn’t matter how much you work, you only get paid a certain amount every pay period.  If you work hourly, there are only so many hours that you can work in any pay period.  There are always ways to advance yourself through the workforce, and up the ladder at work, but your income is still capped.

Uncapped income.

Passive Income Cash Machine
img credit: Whatleydude on Flickr

One way to increase your income, that doesn’t require that you work all hours, and that doesn’t cap your income is through passive income.  I’ve talked about it before here, and here, and here.  The ideal definition of passive income is income you earn without putting in any work.  And, maybe in an ideal world, that type of income would actually exist.  In our less than ideal world, truly passive income is very hard to find.

How I define passive income

I like to define passive income in somewhat more liberal terms.  To me, any income that I can earn with a minimal amount of work is passive income.  If I can make income off of something that only takes me 30 minutes a month, I consider it passive income.  Anything that continues to make me money long after I’ve put the work in counts too.  It’s like Ronco income.  “Just set it and forget it!”

For me, my blogs and websites are passive income.  A majority of the income I make off of them is income from posts I’ve already written.  The work has already been put in, and it would continue to pay me even if I quit writing.  My traditional stock portfolio is a passive income.  I did the work early on, earning the cash to buy the stocks, as well as doing the research to pick the stocks, and many of them pay me dividends on a regular basis.  That dividend payment is a passive stream of income.  Yet another stream that I take advantage of is my Lending Club portfolio of peer-to-peer loans.  (See my latest report on LC)

Other forms of passive income can include things like royalties, patents, and rental properties.  I’m sure if you think hard enough about it, you’ll find several other streams of potential income that would fit my definition of passivity.  (Share them in the comments!)

Why do I like passive income?

Naturally, I like passive income because I’m lazy.  😉  After all, what could be lazier than earning money while you sit on your behind and watch soap operas on T.V.?

“Naturally, I like passive income because I’m lazy.” — @beatingbroke (Click to Tweet)

As much as I like that reason, the real reason is a bit more explanatory.  I like paying off my debt.  I like the ability to do that while still enjoying life.  And, as many of you can attest, doing both of those things can sometimes be somewhat difficult.  Balancing the expenditures that can come enjoying life (even a frugal one) with paying off your debt is troublesome.  The best way that I’ve found to try and do both is to work hard at paying off debt, while working hard at increasing income at the same time.  Without passive income, the only way to increase income is to work more hours at your hourly job or to negotiate regular raises at your salary job.  Recently, it’s become even more difficult to do either of those.  Passive income becomes the last, best way to increase your income with little to no continuing work output.

Why do you like passive income?  What do you consider to be passive income?  What are some of your passive income streams?  What are some that you’d like to take advantage of?

Why Passive Income is Better

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Passive Income is a bit of a myth.  Not so much in that it doesn’t exist (it does), but in what it really is, and why we should all be striving to attain as much passive income as possible.  I’ve written before about what passive income is.  But, in that article, I only wrote a short paragraph on why we should want passive income.

What is Passive Income

You should read the original post on what passive income is, but I’ll recap here as well.  In a nutshell, passive income is income that you earn with little ongoing effort (work).

Why Passive Income

Alexander HamiltonThe why of passive income is really the motivating factor for most people.  Many of you know the allure of free money, or easy money.  And many of you will mistakenly think that passive income fits one or both of those categories.  It doesn’t.  The difference, and the reason you will still want passive income, is in the ongoing work part.  With a traditional job, like the one I recently quit, you get paid per unit of work.  If you work one hour, you get paid $x.  If you work one year, you get paid $xx,xxx.  If you build one widget, you get paid $xx.  Your earning potential is directly tied to the amount of work you do.  More work = more money.  It’s a finite system.  You can only work so many hours in a day, so you can only make so much money.

You’ll still work for your passive income, but, if it’s a true passive income source, you’ll be able to work less for the money as time goes on.  The income is no longer tied to the amount of work you put in, except in the beginning.  Please don’t think that passive income is easy, or that it requires no work.  It does.  In fact, you might work harder than you have before initiating it.  But, once it’s initiated, the work can decrease if you want it to.

Passive Income Examples

One of the most common examples of passive income is rental income.  You rent out a property, using a property management service, and all you have to do is sit back and let the rent checks roll in.  Sounds easy, right?  It is.  But, you have to get there first.  You’ve got to do the work necessary to have the ability to purchase that rental property. RWinvest have some great tips on investing in property for beginners to help you learn how to become a property investor easily and effectively, and get the best return on investment.’

You’ve got to do the work to make sure that it meets codes so that it can be rented out.  You’ve got to do the work necessary to find a property management service that fits your needs.  And, even though it then becomes almost entirely passive, meaning you do no work to attain it, there might still be some occasional work that needs to be done, like deciding whether a repair should be done, and by whom.  As you can see, there’s a huge outlay of work to set up the passive income stream.

Another popular example of passive income is dividend paying stocks.  You own some shares of some companies that pay dividends to their shareholders, and let the dividend checks roll in.  Sounds easy, right?  It is.  Again, you’ve got to get there first.  You’ve got to do the work necessary to have the ability (money) to purchase those shares.

Passive Income isn’t Free Money

Passive income isn’t free money. I can’t repeat that enough. And it isn’t easy money.  You’ve got to put some work in to set up the passive income streams first.  But, once you’ve set them up, each day, week, and year, makes your work cost to attain those funds diminish.  Until, at some point, your work cost per unit of income is fractional to what it would be in a traditional job.  If a traditional job requires 1 unit of work for each unit of pay, over time, passive income might require 1/100th unit of work for each unit of pay.  And, that, is why we should all want passive income.

For me, passive income isn’t about being able to sit on a couch and watch television while the fat checks roll in.  It’s all about being able to pay my bills while I do the things that I like to do.  This site, and others I own, help me with that (although they are far from passive, they aren’t traditional jobs for me either).  I’m working on other methods of increasing my passive income stream as well.  I’ve always wanted to be a published fiction author.  I’m participating in NaNoWriMo to that end, with hopes of being able to self publish ebooks and use the royalties from that as another passive income stream.  I like to take photos, so am going to be exploring avenues of making some income with that as well.  It will require taking more photos, which is work, but, because it’s something I do as a hobby already, it’s a variant of a passive income stream for me.

What are some of the passive income streams that you employ?  What are some of the things that you do as hobbies already, that you might be able to turn into an income stream?

photo credit: quinn.anya