Passive Income

I’ve recently exchanged a few emails about different financial matters with a reader (shout out to Grant). In one email Grant asked me about what I meant for passive income when I stated my goal for financial independence would be when my passive income = desired life style. Our email conversations got me to thinking more about passive income so I decided to share my thoughts and share Grant’s thoughts so you could then share your thoughts. J Thoughts, Thoughts, Thoughts – the best way to gain knowledge.

Until writing this post I considered passive income to be income/money that I didn't have to "work" for, as in a traditional 9-5 (or in my industry 7-6) job. What passive income plans entail is to have saving and principal money that earns interest and dividends.

For 2007 I earned $2,919 in passive income, which is the equivalent of more than a month of expenses for me. This was earned through laddered CD's which contain my house down payment, a money market which contains my emergency fund, and an interest baring checking account which contains my monthly expenses budget.
For the time being I do not include in my passive income calculation any money earned from my retirement plans (401k and Roth IRA) since I don't actually have access to them until I retire. As I progress I want to grow my passive income so that it's about 20 times what I earned for 2007 and invest more in non-retirement brokerage accounts.

Grant was kind enough to share his thoughts:

I have a slightly different perspective on passive income. I view it as money I can make while I sleep (even if it requires a little work here or there). For example, owning a business like a gas station or car wash, owning real estate, earning residual income on intellectual property, etc. Of course, income from investments like yours also fit in my definition.

I agree with Grant – owning businesses is a type of passive income, just not that type of passive income that I personally want.

Before posting this article I did a little recon about other types of passive income besides owning a business and earned interest and discovered something very interesting from Wikipedia. “There are three types of income—earned, portfolio and passive income. Most types of passive income are derived from rental/property, while other types of passive income are derived from royalties from patents or license agreements.”

So while finding out more ways to obtain passive income I learned that what I considered passive income is not passive income. What I considered my type of passive income is actually portfolio income. I guess I’ll be modifying my goal explanation to be financial independence when investment/portfolio income = desired lifestyle.

What about you, what are your plans for passive or investment income? How are you going to achieve financial independence?

PS check out this article, How to Earn More and Work Less at About.com – it has some interesting ideas of how to obtain passive income.

Updates

Thought I’d share some updates on some decisions I’ve made that I pondered out loud with you all in some past posts.

Roth IRA Diversification (click here for original post): I’ve decided go with option 1 and wait until next year to diversify my Roth IRA. I decided upon this because I did not want to deplete my cash reserves because in the coming months you never know I might need to have an emergency FU fund. (Check out Single Guy Money and Single Ma for their take on FU funds)

New TV (click here for original post): For the time being I’ve decided to use Mr. Be-Mine’s TV. I’m going to wait a few months and get a good feel for my expenses after moving and recover financially from the move before adding the additional expense of a new TV. But, I’m definitely planning in indulging myself with a new LCD TV, the timing is that only thing I’m unsure of.

I think that’s about it for items to update you all on (other than work). If you think of anything else let me know and I’d be happy to share.

When to Buy a New Car -- Car Enthusiast's Purchase

I wrote a post awhile back about my friend Car Enthusiast* and how he asked for my advice about how much to spend on car. He took my advice in part - I love it when people do that. J

* I have also referred to him as Car Fanatic in some previous posts. Somewhere along the line I inadvertently changed his nickname. Sorry for any confusion.

I thought I’d share an update on his story in conjunction with a follow up to the open discussion from last week regarding When to Buy a New Car.

Car Enthusiast bought a new car the Saturday before Easter, he called me up that evening all excited about it and drove over to Mr. Be-Mine’s house to show it to us. Its a beauty. He purchased a gorgeous black Honda Civic Si - the sports package. He’s hoping to race it as a hobby.

We’re close enough where we talk finances, while we may not discuss salaries, we do talk big purchases so he told me some of the details of the deal. He put down $2,000 which he’d saved under my advice and financed just under $20,000 at 6.75% for 5 years with a monthly payment of just under $400.

Personally I’d prefer to be able to buy a car outright, but I know that’s not an option for him right now and timing for everything else worked out right where it was the best time to buy a car. I think that financing will work for Car Enthusiast, even thought he’ll have to pay interest it will work out for the best and he should be able to handle the payments after all he’s managed to save more than that for the past four months in order to create his down payment. All and all I think he might a right move for him.

It got me to thinking about when to buy a new car, which promoted the open discussion from last week.

I thought it would be an interesting case study to examine his timing for buying a new car. I had told Car Enthusiasts a while back about my post about the advice I gave him and I ask last Saturday if he minded (not that it would matter since I post anonymously anyway and could have just done it anyway) and he told me to feel free to analyze his purchase.

The big areas to look at before buying a car in my opinion are:

Personal Timing, Financial Timing, Life Span of Car Timing, and Anon added Research which I’m in full agreement with adding to the list.

So here goes the examination of each area for Car Enthusiast’s situation:

Personal Timing – Car Enthusiast is being transferred from Atlanta to Louisville and will be there for the next two years starting in June. With his transfer it makes sense to exchange his 16 year old Honda Civic that has been driven over 280,000 miles for a more reliable car. Car Enthusiast doesn’t mind doing car repairs, in fact he enjoys it but once he moves won’t have the equipment to do any major repairs that his last cars. In Atlanta he’s able to have access to just about any tool or equipment he needs for repairs since his dad owns a car repair shop and he could always go over there and the best mechanic in the shop (his dad of course) would fix it. Being 8 hours away will limit this opportunity.

Financial Timing – While many of us, me included, would rather wait until we can buy a car out right I think Car Enthusiastic passes the financial timing test because he planned for this expenditure. Saved for months, adjusted his budget to accommodate this new monthly payment and knows he can afford these payments since he’s been “playing house” and making them for the last few months.

So check – financial timing

Life of Car Timing - As mentioned in personal timing, Car Enthusiast’s car was well past the mileage mark most would being the life span of his vehicle. While he could continue to make the repairs on this vehicle, no longer having free mechanical work it would not be cost effective to make the repairs.

Research - Car Enthusiast definitely did his research, as you can tell by his name he’s very into cars, attends car shows all the time, researches all the models and could quote spec on just about any car on the road. To make this purchase he has been planning for months and has checked out every detail from gas millage to performance to seat color for just about every car on the market. He also did his homework on pricing and the options he wanted.

So check – research

All in all I’d have to say my friend bought a new car at the right time. I hope/plan the timing will work out as well from me when it starts getting time for me to buy a new car.

And the Winner is....

Congrats JB you've won a copy The Millionaire Next Door! Email me your shipping address and I'll have it sent to you.

To determine the winner of this contest, everyone who commented on this blog from March 6 to Friday, March 28 was entered, if you made more than one comment you got entered more than once. I then randomly drew one of the pieces of paper.

Thank you to everyone who participated in the comment contest.

We interrupt the regularly schedule Monday’s Money Funny segment to share a wonderful sense of accomplishment.

As many regular readers know my brother and I have been training to run our first Marathon. We were inspired after running our first half-marathon last March and have been training ever since with the heavy training and gearing up occurring over the last four months.

D-day arrived this Sunday and we put on our running gear and headed out in the cold to accomplish out goal. Even thought we’d been training for so long and many long runs ramping up to our peak of over 20 miles, we still struggled some during the actual race. But we persevered and finishing just 4 minutes past our training goal finish time.

I have this amazing sense of accomplishment from having run 26.2 miles and knowing that my hard work and training paid off. I’m still feeding off my runners high from yesterday even thought I’m rather soar and walking like an 80 year old today.

Like most things in life I can relate it all back to personal finance. While personal finance is usually not as physically painful as a Marathon it does take sacrifice and planning to achieve your financial goal. To achieve a financial goal, be it retirement or a new TV, you make the plan to achieve it, implement the plan, and then do it.

I got this similar sense of accomplishment (although not nearly as great) when I opened my Roth IRA and started saving for my future car.

The photo on the left is of my brother and I after we finished the Half-Marathon last March, I’ll share a picture from this years Full-Marathon once they are posted

Reflections from a Week of Training ---- Changing Behavoirs

Yea!!---I'm finally back in town and am not living out of a hotel. The first thing I did after getting home was to look for that jump drive --- and it was not found, so now I will be on the look out for it. Not to self always back up work. I use that jump drive for my personal documents so not just the topics from last week were lost. I have my fingers crossed that it will be found.

I wanted to take a few minutes and share what I learned over this last week in training. In my industry I have to take a lot of different trainings to maintain my license to practice but this week I took a class where I not only learned a ton but I also have a new out look. The safety training I took was very powerful - it wasn't about new policies or procedures, everyone knows what you have to do to be safe it was about behavior change and getting people to actually follow rules for the benefit of their life. It really hit home when Tuesday a crane accident occurred on one of our job sites - not because some one didn't know the rules but because they chose not to follow the rules and two lives were lost. To me that made the behavior change even more important. While there is absolutely no comparison to the loss of life or the injuries that occur in construction accidents, I started thinking on my way home from the training about how behavior is so important in all aspects of life, for example in personal finance.

Everyone knows the basic rules of personal finance ---- Live Below Your Means; Save the Rest ---- its pretty simple but a lot of people don't play by the basic financial policies and why is that- its because of thinking and behavior. One of the quotes that was used in the training was by Kenneth Foo and states "When you change your thinking, you change your beliefs. When you change your beliefs, you change your expectations. When you change your expectations, you change your attitude. When you change your attitude, you change your behavior. When you change your behavior, you change your life."

There was an epiphany for most people when they changed their thinking about personal finance and in tern that changed their beliefs, expectations, attitude, behavior and ultimately their life.

For me, I feel a little silly as a personal finance blogger because I'm not like most of the bloggers out there who are either in debt or were in debt but have changed their lives. I've never been in dept and can't pin point an experience or an event that changed my thinking. For me I think it was a gradual awareness that occurred when I was a child, I saw my mom struggling in debt and decided I never wanted to live like that.

Have you changed your thinking so your behavior changed? What caused your thinking to change?

Work-Life Balance --- What's your Max?

This week I'm out of town and forgot to bring the jump drive with my posts for this week --- so in lieu of doing a more traditional post I'm having an open discussion.

Before starting a new topic this week I wanted to give you all some updates about work --- see it pays to drink with the big wigs when you're traveling. I guess one of the big things that came out of the bar was that the "problem" project I'm going to will be changing to 24 hours a day by the middle of April. I'm supposed to keep this under raps as the news hasn't been broken to the project team yet. This is should interesting for me as I've never worked on a project that had shifts - sure I've worked on plenty of projects where we had to go to 10 or 12 hour days, 6 days a week but never shifts so staffing should be interesting, managing the problems etc should be a real learning experience for me. The other interesting thing to come out of this was that the owner of my soon to be project is looking to build some more projects so they are trying to add significant man power to it in order to prove we can handle the next job -- this is a very good thing, it means there will be work in preconstruction department in the near future, unfortunately not enough to justify reuniting the entire department.

Okay...on to the topic for today's open discussion.

At first I thought about asking you all what your time was worth and what's the maximum number of hours you'd be willing to work but I don't know what words of wisdom I could share about this so decided against it. But then changed my mind because my blog is all about my personal opinions (with some research to back it up) so I've decided I'll ask anyway.

What is your time at work worth? What's the maximum number of hours you'd be willing to work?

When to Buy a New Car?

This week I'm out of town taking at a Safety Training Class. When I travel I'm notorious for always forgetting something - but this time I forgot something that I can't easily run to the Hotel gift shop and replace - I left my jump drive with 4 pre-planned posts I wrote this weekend in anticipation of traveling this week. Normally I don't plan posts out but I did this knowing that my company's culture is when you're traveling in a group you go out to the bar each night and with the recent turmoil at work and "temporarily" disbanding my department I figure its in my best interest to continue the practice so I can get the real inside scoop about what's going in the company after the Big Wig's have a little to drink and are more free flowing with the real story.

I know I won’t have the time to spend quality posts and I don’t want to leave the blog dormant until Saturday especially when my comment contest is ending on Friday, March 28th. I was brain storming about my options today sitting in this training class (I know excellent use of time) and came up with a brilliant thought…an open discussion – rather than me post my views and then ask for comments I’d provide a topic each day and then follow it up next week with a detailed post with some resources and my two cents. Feel free to chime in with a topic if you have one you’d like to share about.

Okay so first topic…when’s the ideal time to buy a new car?

I’d been thinking of writing a post about this recently especially since Car Enthusiast just purchased a new. So let’s hear your thoughts when is the ideal time to buy a new car considering:
-Personal Timing
-Financial Timing
-Life of the Car Timing
Etc etc etc

Monday's Money Funny - 3 Star Hotel with Helipad --- I guess even the Millionaires are Trimming Their Budget

One of the regular features on my blog is "Monday's Money Funny" which are humorous (at least to me) articles/jokes/just about anything that I've discovered over the weekend when I catch up on all my on line reading that spark a need for knowledge. For example last week's was on rising gas prices and highlighted Gorda's gas prices which reach over $5/gallon.

This week I decided to change it up from the gas price topic (although I ran across many Money Funnies about gas). Instead I found a very interesting article in the Atlanta Journal Constitution about how the Hilton Garden Inn near Centennial Park has installed a Helipad for its "well-heeled" clients.

Below are some highlights of the article - you can check it out in full at AJC online:
The new Hilton Garden Inn across from Centennial Olympic Park is upping the ante in luxury accommodations.

The hotel is the first in the city to offer a helipad to well-heeled customers.

"It was the brainchild of our builder, David Marvin," said Chuck Powell, area general manager for Hilton. "He saw a need for a helipad in downtown Atlanta, especially if you think of the city's traffic."

The pad, on the 15th floor, is the latest amenity offered by Atlanta hotels to distinguish themselves in the competitive lodging sector. From butlers to spas to restaurants created by celebrity chefs, the city's hotels are sprinting to top each other to attract big spenders.

Mark Newton, program director of the hotel, restaurant, tourism management program at Gwinnett Tech, said the helipad will give the Hilton Garden Inn a marketing advantage.

"Every brand is trying to find a way to get the consumer to notice their product," he said. "You want to be remembered. It's all about positioning."

Seriously a helipad at the Hilton Garden Inn? Don't get me wrong I think the Hilton Garden Inn is a nice place, but its a 3 star hotel and most people being flown in private helicopters don't stay at 3 star hotels. There's only one 5 star hotel in Atlanta (soon to be a second that's currently being built by my company), so I can understand those "well heeled" clients needing to down grade their standards a little and stay at at 4 star hotel - but you tell me who owns/rents a helicopter and then stays at the Hilton Garden Inn? I guess even millionaires are having to cut back in today's current economy.

Usually my Monday's Money Funny promote some type of research - but I'm sad to say that's not the case today, unless you're like to know how to fly a helicopter. I decided to include this article anyway since I found it rather humorous and timely as I'm going to be living out of a hotel for the next week. Too bad I can't take the Helicopter to the Hotel it would sure save on my travel time.

Stay tuned for next week's Monday's Money Funny. If you run across any Money Funnies please email them to me at future.millionaire.blog@gmail.com and if I use them I will give you credit and link to your blog.

Weekend Round Up

Below are some of the highlights from this week in the PFBloggers World:

Living Almost Large questioned about Downgrading your lifestyle? I found this most interesting as I'm about to move into my nicest housing ever so its going to be hard to downgrade from that in the future.

Johnathan at Master your Card posted Why raise your Fico score? Check out the chart at the end of the post highlighting the different interest rates based upon FICO scores - gives me extra incentive to ensure my FICO score is as high as possible before I buy a house in the next year.

Kevin at No Debt Plan posted It’s Starting to Sink In. He and his wife area already starting to plan to buy their next car in 2012.

If you're in my age range make sure and check out Planning for your future without relying on Social Security - Part One - Starting Young posted at The Social Margin.

Seb at Pinching Copper posted Minimum wage doesn’t work be sure and check out my comment about why People who make minimum wage choose to make minimum wage.


Don't forget to check out all the other blogs in the network. I've conveniently listed them all in the left hand column for your use.