Increase your income instead of waiting for a pay raise

If I asked if you were doing everything you could to generate income, what would you say? A lot of people think that pay raises are the only way to earn more money. That’s true, right?? Well let’s see…

First, we need to address the debt situation. Owing money (for any reason) will eat up your monthly paycheck. Next time you think to yourself “I could handle $25 a month for this new TV” the first thing you should do is punch yourself in the face and realize that it’s going to reduce all further paychecks until the thing is paid off (which will probably take a while). The second thing you should do is walk out of the store proudly sans TV and fire off an email to Johnny Moneyseed with the title “You’d be so proud of me”.

If you make $1000 a month and your monthly bills include $500 worth of loan repayments, you are only netting $500 a month, since the other $500 does not belong to you. Eliminating debt, in this situation, would allow you to buy a $500 TV every single month. And without owing anybody anything.

We started our road to recovery with $60,000 worth of debt. After finding the snowball/avalanche method of debt repayment we paid off our debts about 5 years earlier than we would have by using traditional methods. This isn’t the only method, but it’s the one we used, therefore, it is the best.

The hardest thing you could do to make more money is to give in and get a second job. Depending on your situation it may or may not be a necessity. I would say that if it’s even an option for you to have dual-employment to just do it. If you have kids or your full-time job is 1000 hours a week then this option may not be available to you.

It doesn’t matter if you’re a cashier, a nurse, or a construction worker, the fact is that you need more money, and complaining about it just doesn’t seem to be working in your bank account’s favor. Find something you actually like to do so you don’t add more stress into your life. Like kids? Babysit. Like driving? Deliver pizza. Mow lawns. Walk dogs. House sit. Your options for part-time employment are pretty limitless.

The easiest thing you could do to make more money is to reduce the waste in your life. Having a smartphone is a luxury. Having cable TV is a luxury. Eating out at restaurants is a luxury. Luxuries are non-essentials that weigh down on your paycheck. Not everyone is going to be willing to give everything up, and I completely understand that, but if you are serious about paying off debts or increasing your income, these are the areas under your control.

The most enjoyable way to increase your income is to utilize your talents and resources. I, for example, write these lovely posts for you on the website that I own and in return, when you click on advertisements, I receive a small compensation. Don’t get me wrong I’m not saying I’m talented or that the extra income would make anyone jealous. What I’m really saying is that I love to write, and I love personal finance, which is why my side-hustle involves both of those things.

Figure out what you love to do if you don’t already know. Offer whatever it is as a service on Craiglist. Start your own blog. Teach lessons. Anything that can make you even a few extra bucks from time to time.

All of these things will land you more money. They’ll also probably eat up a good portion of your time. It’s important to realize that more money shouldn’t equal more stress. The whole reason we’re trying to make more money is to reduce stress.

Money isn’t the key to happiness in life, but it does help. Once you get to the point when you don’t owe anyone anything, you can breathe a breath of fresh air. You can go for a hike in the woods, or have a backyard picnic, or whatever you do for fun without feeling the weight of stress on your shoulders. It’s crazy to think that not even five years ago, I used to have to borrow money from my parents whenever I couldn’t pay my bills, and now I write about how to save/make more money.

We’ve done everything from selling stuff to make money,  to significantly reducing the cost of our lifestyle, to paying off all of our debts, to starting this site. I figured that it was time to pass on some of the things I’ve learned over the years, but only the stuff we’ve actually done, or things that have worked. I’m a strong advocate for following my own advice, so anything you see throughout my posts are things we have done, or actively do to further save money.

If you catch yourself talking about “how broke you are” or “how in debt you are”, stop and think to yourself have I done everything I can to make extra money? I know I couldn’t stroll into my boss’s office and say, “Look dude, I need a raise”, and you probably couldn’t either. Let’s stop basing our futures off non-existent pay raises and turn to areas of opportunity that really do exist.

*Johnny Moneyseed does not advocate doing anything illegal to make money. Seriously, don’t do anything illegal to make money. I mean it!

The Neglected “Secret” to Becoming Rich

I guess I wasn’t paying too much attention early on in my life, because I had no idea that middle class families actually struggled until I started my own. I’m not saying that my family didn’t struggle while I was growing up. I’m sure they did, but it wasn’t really a topic of conversation to be had over dinner. My parents made, what I thought to be, a shitload of money.

But now I’m older, and probably a little bit smarter (better looking??), and a fortunate member of the generation that was brought up with the Internet. It’s become apparent through all sources of the media that the middle class is struggling. Not able to pay their bills. Even becoming homeless.

There has to be something that these people missed along the way. And maybe the bills and cost of living truly outweigh the paychecks. I’m not going to claim to know everyone’s situation, so I’m speaking in general to the middle class.

I’d like to share with you today, the secret to becoming rich. The secret to a life of wealth. The secret to having a stash of Fuck You-money* that you can hold over your future employer’s head when you’re up in arms with them. And it’s extremely simple in theory, although it may (in some cases) take a complete life alteration.

The crazy thing about what I’m about to tell you is that I know for a fact most people aren’t doing it, because if they were there wouldn’t be too much struggling going on. There would still be complaints about tax raises and budget cuts, but most people would fare pretty easily.

I think I’ve built up enough of a hype already so here we go: The secret to becoming rich, wealthy and powerful (if that’s what you’re going for) is to spend less than you make.

Now you’re thinking “No shit Moneyseed”. Obviously this isn’t a secret, but with the way that people blow through money, you couldn’t help and think that maybe it is. If this is a known, why isn’t it put into practice? Why are tax returns spent on “me” money? Why do people have smartphones with a $90 data plan and continue to say they’re struggling? Why are they consuming gas? Why why why why!

I can’t really answer why for anyone, besides the fact that it’s what they’ve been programmed to do for the past x years of their life. Advertisement and social acceptance play a huge role in the way people spend money whether they realize it or not.

When the Mrs and I decided to get married, we both lived at our means. There was no saving. The fact that we were both making full paychecks and had no additional mouths to feed and still couldn’t save is borderline terrible. You see, our parents grew up in a generation where they had pretty much nothing, so once they had kids of their own, they decided “My kids aren’t going to have the same shitty childhood I did”. As one might have guessed, this led to chronic consumerism.

We had brand new expensive cars, cell phones, laptops, wardrobes. I’ll summarize: We had expensive taste in everything. But one day it hit me like a piano in an insurance commercial; we can’t keep spending like this. Stuff isn’t as important as our futures. Our future kids’ futures. And the simple solution to have money for the hard times was to spend less than we made.

Starting to save money wasn’t very hard for us. We set ourselves up on an extremely loose “budget”. Once our paychecks hit our bank account, we transferred about $100 into a savings account. Over time our accounting got better and better. Over time we learned what parts of our “budget” we were putting too much money in to.  Over time we learned what areas of our “budget” were completely unnecessary.

You can live your life thinking that other people are the problem. You can think that people have it out for you, or members of your family. You can habitually spend your entire paycheck or more. You can make that stupid joke a few hours after you get paid “my whole paycheck is already spent lulz”.

The media can tell you that you’re struggling. They can make you believe that it’s the system. That everyone is struggling. You might even hear everyone saying that they’re struggling. Well, we heard them too. But we decided to not believe them. We decided to not make excuses.

We decided to take the less common path, and started to spend less money than we earned.

I’d like to personally think that the Moneyseeds have left the middle class. It may not be true on paper, but we don’t live a lifestyle like anyone we know. We save over half of our take home pay. If our employer was downsizing and said “Hey Moneyseeds, money’s gettin’ tight, we’re gonna need to let you go” we would be able to sustain ourselves comfortably for almost 2 years with what we have saved.

Here’s the crazy part of the whole thing: We are average people. If you met us you wouldn’t think that old Johnny Moneyseed is a crampy-pants cheap-ass. You’d probably just think I was a regular dude. You’d probably notice that our kids had decent clothing. And that our cars aren’t rust buckets. But if you looked at our bank accounts, you might have a heart attack. But like I’ve stated before, the only thing we did was spend less than we earned.

You’d be surprised how fast savings can add up over time. If you read this blog regularly, it might add up even faster!

** Credit for the term “Fuck You-money” goes to Jim Collins.

Traveling without blowing a hole in our wallet

Mrs. Moneyseed and I have been married almost 3 years now, and we haven’t taken one actual vacation for leisure, as most of our previous vacation days were used to spend time with family, or to attend weddings, etc.

This year we’re breaking that mold as we are planning not one, but three, awesome vacations.

The first trip is to Orlando, Florida. We’ll be spending about a week in town hitting the tourist traps, but primarily spending our time hanging out with friends, cooking, lounging by the pool, drinking a few beers and playing the occasional board game*.

Expenses: ~$1000

The second trip is the big one, it’s a full-week resort getaway in Ecuador. Mrs. Moneyseed and I will be spending the week with Mr. Money Mustache, JD Roth, Jim Collins and Cheryl Reed, as well as 23 other lucky individuals, doing a little soul-searching as well as helping out the local community.

Expenses: ~$6000

The final trip will be to St Louis, Missouri for FinCon13, an event for personal finance bloggers to learn from, share, and network with some of the greatest members of the community. Apparently this conference is supposed to be the bee’s knees for us finance nerds.

Expenses: ~$1000

Every month we put $750 into our American Express high yield savings account so that we can put it towards new experiences/travels. Even though we have the money readily at hand to go on trips like these at our whimsy, it just wouldn’t be right unless we tried to somehow “earn” the $8000 so our savings would not only be unscathed due to our travels, but they would continue to grow.

Here are a few ways that we can save a little extra money to help absorb the costs of our travels:

  1. Refinancing our house. Don’t get me wrong, we aren’t doing this so we can go on vacation. We’re doing it because we were able to reduce our APR to 3.25%, which brings our payment down by $300/month. We are closing next week, so we will get a pass for April’s mortgage payment. That means we are saving $300/month May-December and saving $1900 in April for not having to make a payment. Total $4300
  2. Utilizing child care vacation days. It’s pretty standard that you have to pay for daycare year-round to keep your kids’ spots even if they are out for a day, a week, or longer. Our daycare center gives us 2 vacation-weeks a year (per child) where we can pull our kids out, and not have to pay for them for the duration. We will be fully taking advantage of this perk this year. Total $600
  3. Selling stuff. I can’t set an exact amount that we will receive from selling stuff this year, but just looking around the room right now all I can see is dollar bills. My aim is to sell at least $100 worth of crap online every month through December. Total $1000
  4. Credit card rewards. Traveling is a great time to cash in credit card reward points. At the beginning of the year we had a balance of $250 unused rewards, and we are projecting $800 additional points this year. Total $1050
  5. Blog income. Since two out of three of our trips can be written off as business expenses, it only makes sense to pay for as much as these trips with blog income as possible. To fully pay the remainder of trip expenses we would need to average $105 in blog income from now through December. Total (hopefully) $1050

Will everything go according to this perfect arrangement? Probably not, but unlike the typical American family, we aren’t just saving for vacations, we are trying to Save Our Savings as well. If we are $1k-$2k short in the end, then we still managed to not spend $6000 on traveling.

Saving money alone isn’t enough to get you ahead. It’s only enough to level you out. Back to zero. To accomplish this feat of traveling practically for free, you have to be creative, and try to find money where most people would overlook it.

What lengths do you go to to save money for traveling or other big expenses?

* In addition to being Personal Finance junkies, The Moneyseeds are also huge board game nerds.

Setting up a passive income stream

Financial Independence can be achieved in one of two ways. The first being that you have a pile of money that is so big you won’t ever be able to burn through it by the end of your life.

The second, and more feasible way for most of us to achieve Financial Independence is by creating passive income streams. It’s a very simple idea on paper: Once you have more passive income being generated annually than you are spending annually you have become Financially Independent.

Passive income creation is paramount to any “FI”er that is seeking early retirement. This is the idea that sparked my lovely moniker, Johnny Moneyseed (which is surprisingly not my real name).

Johnny Appleseed (John Chapman) was a businessman in the 1800s. His dream was to plant so many apple trees that no one would ever go hungry. Legend told of Johnny going to many places across the country planting apple seeds along the way.

Mr. Appleseed knew that he could eventually create an “infinite supply” of apples, by repeated planting, cultivating and harvesting of his nurseries.

Mr. Moneyseed does the exact same thing, but with… you guessed it, Money! Money has an amazing ability to produce more of itself, if handled correctly.

For every $100 you plant, you could expect it to produce an additional $5 a year. Of course I’m not talking about planting it in the ground, I’m referring to the stock market. The stock market is the first area of opportunity to generate passive income that I will cover, but it’s not the only one!

Naturally, if I have $50,000 invested, I can safely assume that $2,500 will be produced every year. If reinvested (replanted) instead of being withdrawn (harvested) then the following year our $52,500 balance will produce (yield) $2,625.

You can tell me that I’m wrong about my numbers. You can tell me that there’s no way of predicting the stock market. You can tell me that we’re bound to see another recession, depression, or otherwise that will gobble up my money and make me look like an asshole. If you’re a naysayer, leave your comments below and I’ll address each one individually!

But if you are still willing to hear me out, let’s look at the one of the more common indexes, the S&P 500, as a benchmark for the following example. The words “S&P 500” may sound familiar, but newscasters tend to focus of the S&P’s little brother instead, the DOW Jones Industrial Average.

In extreme brevity, the S&P 500 tracks 500 U.S. equities and displays a generally accurate depiction of how the entire market is faring.

I’m not going to go all Dave Ramsey on you and try to tell you that the S&P 500 is a sure-fire investment that has gained 12% since it’s inception in the early 1970s. He’s not half-wrong though, because it truly is a beast!

S&P 500 - Johnny Moneyseed

The S&P 500 since inception.

As a point of reference I would like to use the year 1984, because it was a fabulous year. Not only was it the first year that Apple began to sell Macintosh computers, but it was also the year that I was born.

For scientific purposes, if you were to travel back to 1984 in your DeLorean Time Machine and invest $100 into the S&P and then fast-forward back to the future to December 31, 2012 your investment would be worth $791.00. That’s an average climb of about $20 a year. It’s safer to not have such lofty goals, so I’d prefer to sticking to the safe value of $5 for every $100.

Obviously, the more money that we could have invested back then, the more it would produce us today. Unfortunately, you probably don’t have a DeLorean, and even if you do, Doc Brown probably hasn’t made his way to tuning it up for you yet.

The stock market is kind of a weird place. You can’t just say “I want some S&P 500 please” because it’s an index, not a stock. You could buy shares of all 500 companies that it’s comprised of, but the more realistic option is to buy a mutual fund based on the index. Vanguard has a low-cost* mutual fund called the Vanguard 500 Index Fund Investor Shares with the ticker VFINX, which is exactly that.

I wouldn’t recommend creating a portfolio that only consists of VFINX shares, but I also wouldn’t recommend neglecting it’s power. For best results and the highest dividends possible I focus on a technique called Dollar Cost Averaging. That’s just a Fancy term for scheduling recurring investments of a given amount of money regardless of current stock price. For example, every month I may buy $500 worth of VFINX, I don’t care if there’s a recession or the market is hitting all-time highs, because we aren’t looking to time the market, we are looking to create the best average stock price over time.

Recessions, or market lows are actually great times to buy shares, because it’s like the stock market is having a sale! You can buy more shares for a lower price! It can be risky though, because if the stock market bottoms out, you will lose everything (but if that happens, we’re all screwed!).

To become financially independent, with the ability to never have to lift another finger as long as I live, I would have to have a passive income stream of at least $30,000 a year. I had stated that every $100 that I have invested will create $5 every year, so the math to figure out how much I will need to have invested to sustain my minimum threshold is very easy. Just multiply the amount we want to receive every year by 20.

To produce $30,000 a year, I would need to have $600,000 invested.

I’m going to save how we plan on living our life for under $30,000 a year for a later post, so if your mouth is open or you are squinting at your screen saying “Yea right!” Rest assured, I will let you see how inexpensive life can truly be.

*VFINX has an expense ratio of 0.17%. Comparable funds can have expense ratios over 1.0%!

**Past performance of the stock market does not guarantee future returns. But it’s a safer bet than the casino!

Reducing the cost of commuting by moving

We live roughly 11 miles from work. Luckily, the Mrs. and I, work in extreme close proximity to each other, so we can share a nice car ride to work together every morning, and again at the end of the day.

Even though we live within a mile from the highway that leads right to our workplace, our 11 mile commute takes anywhere between 45 minutes to an hour. Every single time we drive to work. And again every time we drive home.

When we were in the process of buying a house, we were told that no matter where we lived we’d be fighting crazy traffic every morning. We were led to believe that sitting in shitty Maryland traffic day after day was the norm. Everyone does it!

The house we decided to buy was pretty much our dream home. 3 bedrooms 2 and 1/2 baths (one of which being a 12′ x 12′ enormous luxury bathroom). Hardwood, granite, stone face, the works.

Our monthly mortgage payments came out to about $2200 a month, but after closer inspection, it seems like our distance from work should be added into the cost of home ownership.

The first and most obvious calculation is of course gasoline consumption. FuelEconomy.gov states that my 2008 Volkswagen Passat has an average MPG rating of 22 miles, with premium gasoline. More realistically, including warmup time, acceleration, braking, stoplights, and dealing with Maryland drivers, I’m probably averaging something closer to 15 MPG.

The old VW traverses about 484 miles each month, divided into two daily 11 miles trips over an average of 22 commuting days . As we speak, the current local price of premium gas is: $3.95/gallon (GasBuddy.com). 32.35 gallons of gas is the amount that it takes to get us to and from work in one month. In dollars: $127.45.

But that’s not too bad, right? An extra $100, who cares! Well, it’s actually a lot more than $100, since that was only our FIRST addition to the cost of home ownership for us.

Next, you have to take into account wear and tear of the vehicle. CommuteSmart.info has a nice calculator to show “true cost” of your monthly commute. Their estimate of $3.357/gallon adds $.59 to every single mile you drive when you take into account general degradation, vehicle registration, insurance, tires, license, depreciation and finance charges. I ramped up the estimated cost of a gallon to the $3.95 (mentioned previously) bringing the total monthly cost of driving to: $472.71, of which only about $127 of that is gasoline.

Driving together every day for a month is ideal, but it isn’t always the case. Occasionally we have meetings or appointments we need to attend, and they are never as local as we would want them to be. I won’t add those numbers in here. Just imagine a bigger number.

So far the cost of commuting has added $472 to our mortgage, bringing it to a total of $2672 per month.

The most precious expense to Mrs. Moneyseed and I, is our time. It’s invaluable, but I’m going to assign it a value anyway, because that’s what Vicki Robins and Joe Dominguez taught us in Your Money or Your Life. At 90-120 minutes per day commuting, we waste almost 38.5 hours per month in traffic (EACH!). The value of 1 hour of each of our lives is about $8. It’s fair to say that we spend $616 worth of life energy EVERY month, sitting in traffic.

Amending the original mortgage cost of $2200 with the cost of commuting, and the value of personal time lost, we are left with a grand total of $3288.

What can we do about it? Well, we’ve had a hare-brained idea recently, inspired by the trek towards early retirement to reduce the cost of our commute. Without the availability of public transportation or the safety necessary for travel by bike, there’s only one real option: move closer to work. We’re not married to the idea of moving, but the idea of saving money daily is intoxicating.

We could rent our current house out pretty easily for the amount that would make a mortgage payment on it non-existent for us. That gives us the freedom to move without having to pay two mortgages out of the same coin purse we were using for the single home.

After searching the Internet and talking to our realtor, we found a few houses with price tags that are $150,000 lower, and are within 3 miles of work. With a 15 year mortgage, we’d be looking at a monthly payment of about $1400. Aside from the fact that it would be paid off in half the time, our payment would be $800 lower than our current home.

Being 3 miles away from work (and under extremely lazy conditions) the cost of commuting for one month would be: $273.53 Between the location of our potential home and our current place of work there are virtually no known traffic spots. Smooth sailing, 6 miles a day. As far as life energy is concerned, we would be spending a significantly less amount of time behind the wheel. 7.33 hours combined between the two of us @$8/hour that adds about $58.50 to our total. $1400 (mortgage) + $273.50 (commute) + $58.50 (life energy) = $1732, or $1556 LESS than our current situation.

Our full intention with living close to work is to be able to commute by bike whenever it’s nice enough to accommodate this behavior. We would literally be the only people that biked to work, but we’re also the only ones that are going to be retiring in their 30s! I consider biking to be a positive because not only is it free, it’s also great exercise!

The downside? Becoming landlords. We could take the easy route and hire a property manager, but since we live in the local area I feel like that would be a waste of money. I haven’t done too much research on the process, or the pros/cons of becoming a landlord. So I’m turning to you, Moneyseeders.

Do you have any horror stories about becoming landlords? Have you had any problems with the ownership of a second property? Do you think this idea could potentially put us in over our heads?