Multiple Streams Income

When I mention my plans for early retirement to friends and family members, the response is generally somewhat dutiful. As the person with whom I am speaking ponders the subject of retiring early, the look of skepticism on his or her face is revealing. The line of questioning that follows usually tends to express the “have you really thought this through” attitude the person is trying to hide while trying to seem less critical – as if retiring in my 30′s is as mythical a goal as taking flight beneath a pair of wax wings. It seems that sometimes people even think it laughable.

The other day I brought up the subject with my brother.

“I figure I should be able to retire in less than ten years,” I told him.

He looked at me quizzically and hesitated, before replying “…what are you gonna do then?”

The question struck me in its matter-of-factness. I’ve thought about it, oh, plenty of times. But nobody has ever asked me point-blank like that before. I answered, then felt like I was in a Napoleon Dynamite movie. “Whatever I want. Take trips, sit around the house all day, work on my own projects, see movies, go out to eat, whatever.”

“Hmm…” he said, then didn’t speak again for awhile. My brother is a fairly quiet person to begin with. Then finally, “that’s cool.”

Despite being a man of few words, he made me really think about why I’m striving so hard to become retired. I’ve interrogated myself so many times that sometimes I feel as if I’m repeating myself while having a conversation with someone I’ve just met. Do I want to retire because I’m lazy? Not really… I’d say I work pretty hard. Is it because I hate my job? Not at all; actually I’ve got a great job. I enjoy what I do, the pay is good, and the people I work with are good too. So then what is it, really?

For me, the bottom line is security. Or at least, a greater level of security than I feel like I have now. I always just feel better when I’ve got a few grand stashed away in my savings. Maybe because I’ve lived through times where I wasn’t sure I was going to be able to pay my bills the following month, or maybe because I’ve had health issues that have kept me out of work in the past. It’s also partly because I don’t like feeling like I’m a slave to one means of making an income. Even though the company I work for treats its employees really well, I can’t get comfortable with the fact that, were I to lose my job and find myself unable to get another, a day would come when those savings would run out and I wouldn’t be able to support myself anymore.

There are always risks, of course – no matter where your money comes from. But a great deal of the age-old wisdom is true:  the fewer your dependencies, the more each one of them hurts to lose. Job security only lasts as long as your job does. For me, the ability to stop worrying and realize that I’m working toward a day where I won’t have to be reliant on just one thing is what makes this worth it to me. People might look at me like I’m crazy, but I don’t mind. It’s not about proving anything to anyone – not even myself. I want to retire early so I can not retire – so I can keep doing what I’m doing because I want to, not because I need to.

Ask anyone the following question, and you’ll get a pretty narrow set of responses: “Would you rather have more money, or less money?” The skeptic will rebut your question with, “That depends – how much money is ‘more’, exactly?” For the most part, I think most people will automatically answer “more,” and in fact the conventional wisdom in financial planning is that “more money is always better.” But is it really that cut-and-dried?

I was reading up on the topic of using one’s 401k to pay down their mortgage early, and was very surprised at what I found. The majority of posts and articles referencing this topic appear to recommend that you should not only leave your 401k alone; you should also prolong your mortgage for as long as possible.

This line of reasoning is flawed, in my opinion, because it forces you to plan based on three uncertain assumptions – that your 401k will earn an average annual return of 6-8%; that the mortgage income tax deduction will stay in effect perpetually; and that the dollar will remain stable and retain its value. I’ll address why each of these assumptions can be dangerous below.

The fact that many financial planners actually advise you to stay in debt should be quite alarming – but to many of us, it isn’t. Our cultural desensitization to debt is the very reason the economy has spiraled into crisis several times, even during the years since we’ve instituted so-called “fail-safes” in the banking industry. In order to get back on the right footing, we need to stop taking for granted the fact that we spend so much money that isn’t ours. That paradigm shift has to start on a personal level in order for it to make a difference in your financial life.

Your 401k Is An Investment

All models of 401k growth that I have ever seen indicate that over time, your gains will average out just like the stock market has. Never mind that the 401k hasn’t even been around that long – IRS code 401(k) was enacted in 1978 and became law in 1980. It took well into the late 80′s before the majority of companies offered 401k plans at all. So the performance of your retirement account over the 40-or-so years of your working life is estimated largely based on less than three decades of actual statistical data. And anyone who’s had a 401k account through the first part of the twenty-first century knows that it’s not all upward arrows. Had the 401k been enacted earlier and seen more prevalence during the recession of the late 70′s and early 80′s, I doubt the historical data would induce much more confidence.

I think 401k’s are a great way to save. But to say that you shouldn’t withdraw from your retirement to pay off your house is to assume the best possible outcome of a fallible investment vehicle. Paying off your mortgage, on the other hand, grants you a guaranteed return. You know for a fact that every dollar you save in interest is a dollar that goes straight into your pocket.

Tax Deductions Are Not Written In Stone

As long as America’s deficit keeps growing, lawmakers will always be looking for ways to cut corners. You are not entitled to your mortgage interest deductions, nor is there a guarantee that if you decide not to pay down your mortgage faster they’ll remain as they have for the next thirty years. Attempts have been made to cap the deduction in the past, and recently it came under review again. Don’t count on it being there forever, but instead take it as a gift and you’ll be in a better state of mind to make decisions as to where your money goes.

The Dollar Is Being Exploited

If you already own a home, you have paid a set price for a specific amount of land and a specific building. You will never have to worry about the rooms suddenly shrinking. Once you own it free and clear, you will probably never have to worry about a government employee coming in and deciding they’re taking your couch and coffee table to their office, either. Metaphorically speaking, your physical residence will never be demolished by the dollar. Its value in dollars may change, yes, but its value in terms of your lifestyle is at far less risk. Real property has that name for a reason. You can’t sleep on a bank account. You can’t wrap a thirteen-digit number around your shoulders to keep warm.

Future gains in your 401k and other savings and investment accounts, by contrast, are under the constant pressures of fluctuating currency values. The government can cause inflation (“quantitative easing,” as it’s currently being disguised) because they feel that heavy manipulation is preferable to a more hands-off approach. Realize that you have the ability to make choices that say, despite the downward spiral of our economy and the government’s longstanding ‘I-want-it-now’ monetary policy, you want to behave more responsibly.

The Value Of Certainty

My long-term strategy for retirement doesn’t center around me working late into my 50′s and 60′s and then living solely off of my 401k and government programs for the elderly (medicare and social security are fundamentally flawed, and I wouldn’t depend on them any more than I would depend on the government to protect the value of the dollar). I’m working toward a level of real property ownership that provides multiple streams income based on the current market at all times. That’s why, despite the additional tax I may incur, as soon as my 401k balance exceeds my remaining mortgage balance, I will objectively consider liquidating it in a strategic manner so as to eliminate my mortgage.

I don’t consider the possibility that my retirement account could continue to grow to be a deterrant; it could just as easily do so until a few years before I retire and then fall victim to the next financial crisis. No, I’d rather take more control (and yes, maybe less money) sooner, than leave my future in the hands of a crippled system run by greedy, irresponsible people. So is more money (or rather, the possibility of it) really always better? Not always. As far as I’m concerned, the peace of mind is what pays the greater dividends.

Are you familiar with pyramid schemes? No, I’m not suggesting you start one. I want to talk about how and why pyramid schemes work, and relate some of those concepts to you. Knowing more will positively affect the mentality you have about your finances. I am not, nor would I ever, suggest or endorse that you be involved in a pyramid scheme. But I definitely want you to start considering the value to be gained from learning about the various ways money changes hands.

How Pyramid Schemes Work

To describe it simply, the basic pyramid scheme functions by preying on greed. It works based on the premise that by sacrificing a little now, you’ll gain a lot down the road. Usually, involvement in the scheme requires the victim to purchase some kind of information or product that is supposedly the best of its kind or is a well-guarded secret. When you buy into the scheme, you’re essentially buying the right to then sell that information or product to others.

Just imagine if you were such a great salesman that you were able to convince a million people each to give you a dollar. You’d have to be very convincing, of course. Now think about if you told each one of those people that all he or she has to do is pay you $1, and in return you’ll tell him or her how to easily make a million dollars. For many people, obtaining such potentially profitable information for such a low price is enticing. While this is an extreme example, this kind of salesmanship creates massive amounts of intrigue and leads a great number of people to say “well, what have I got to lose? It’s only a dollar!”

The ‘base’ of the pyramid grows every time someone who has sacrificed their dollar wants to make it back. So you have a million people each trying to convince a million more to part with their hard-earned dollar. The best and most convincing salesmen get the dollars of their friends, family members and co-workers, while the bad ones (and the overly pushy ones) just get on their nerves. Each person at the base of the pyramid becomes one of multiple income streams for the person at the ‘peak’ directly above them. There are more elaborate and complicated versions of the pyramid than the one I described to you above, including schemes where the base pays ‘membership’ fees or some other type of recurring charge.

And Now, A Story

When I was in middle school, a kid I knew walked up to me before first period and asked if I had a dollar. He told me he didn’t have lunch money and would pay me back the following day. Even by the tender age of 12 I had already begun to develop shrewd financial tendencies, and that, along with the fact that I knew him to be of somewhat questionable character, led me to turn away his request. Lucky was I, for later that same day (during fourth or fifth period, I believe) we had a class together. Imagine my surprise when he pulled a fat wad of $1 bills and several coins from his pocket and began to count them at his desk. His friend – the girl sitting next to him – saw the pile and exclaimed, “I thought you didn’t have any money!”

“I didn’t,” he replied. “Until I told everyone.”

I watched him count out no less than twelve dollar bills and a few bucks more in coin – at the time, that would have been enough to buy lunch in the school cafeteria for nearly two weeks straight (a day’s lunch cost $1.65 in the mid-90′s). So what did I learn from this experience? That money finds those who have the wherewithal to get it.

You don’t have to be dirty and underhanded to make money, but it will make you that way if you let it. Just as greed leads people to fall victim to confidence scams and pyramid schemes, wisdom leads people to make the most responsible choices based on knowledge rather than conjecture. Don’t guess or gamble, take risks or roll the dice without doing your due diligence and having a backup plan.

Building Your Pyramid

Now that you know a classic pyramid scheme relies on the greed of the base to benefit the peak, realize that there are tons of ways to make money legitimately and without pulling the wool over anyone’s eyes. You can easily build a pyramid and collect income from multiple sources without it being a ‘scheme.’ At the time of this writing I have seven different online income streams, and I hope to grow that number moving forward. Each source in the stream may only yield a few bucks, but if the total is enough to buy groceries for the month or pay my auto insurance bill, I’m satisfied that the time spent setting them up was worth it. Here are some ideas for ways you can start building up small amounts of extra income online. Some require more technical knowledge, some more artistic talent, and others just require you to get traffic to a website:

• Stock photography sites
• Stock media sites (audio clips, video clips, website themes, 3d objects, 2d graphics)
• Amazon affiliate program
• eBay partner network
• Google AdSense
• Mobile application development (android, iphone, blackberry, windows)

You’ve likely heard the old euphemism “there’s no magic bullet.” It’s used to illustrate the fact that shortcuts to success are few and far between. That phrase isn’t entirely true when it comes to money, though – winning the lottery or being the beneficiary of a deceased relative’s fortune sound like two magic bullets to me. But regardless of how likely or unlikely it is that some windfall financial event will happen to you, one thing remains true: it is possible to mishandle any amount of money. From the alcoholic homeless man down the street to the federal government, people are managing sums of money across the board with great incompetence. Professional athletes and lottery winners alike have won or earned millions upon millions of dollars and frittered it all away, only to file bankruptcy as a result of their perceived financial invincibility.

There is a popular and widely-known system from a modern financial guru that teaches people how to radically turn their debts around. There’s a lot of great advice in this system – or so I’ve heard; the problem is, it’s very expensive. I believe that especially for someone trying to get out of debt, buying something they can get for free is a waste. That’s part of the reason I created this website in the first place – it’s my forum to share everything I’ve learned about money and personal finance in my (relatively short) lifetime, and to have it all written down both for my personal recollection and to help anyone else that might get something out of it. Every word on this site is free, and not in the “buy this now and get that free” sense, but in the completely-everything-you-read-or-see, no-strings-attached sense. I don’t sell or ‘give away’ e-books, I don’t have a members-only section of the site, I don’t pitch sales for pyramid schemes, and I don’t give privileged information to only a select few. But I digress.

In the absence of a magic bullet like the ones mentioned above to solve all your debt problems, all that exists is self-control. The financial system I mentioned above is filled with common sense rules and advice that anybody with some discipline can follow and put to good use. I’m going to lay it all out here, in this post, for free. But first, there are two things I need you to understand before we go any further. Be warned – I’m going to be hard on you. This is the plain truth, after all:

1. You are in debt because you cannot control yourself.
2. The only way to get out of debt is to learn how.

Plenty of hard luck stories exist, and I understand that sometimes the unexpected happens. Huge medical bills, home repairs, automobile maintenance, etc. can all be a big kick in the pocketbook. But part of my stance, and I would argue this vehemently, is that part of financial responsibility means being prepared for the unexpected. If at any given time you don’t have at least two months’ income sitting in a savings or easily accessible investment account somewhere, you are not prepared. You aren’t ready to be reading this and you should stop now.

Too many people have become uneasy at the thought of having extra money. They feel like saving or investing it is a waste because it’s just sitting there – it might not earn enough interest, or else there is the possibility of investment losses, so therefore it’s better to spend that money instead, many would say. Others start earning some bucks and get caught up in “before they hatch” syndrome – a common problem, as I have fallen victim to in the past, where we think “on this date, I’ll get this much money from this source, and after that I’ll be getting some money from that source,” etc. Looking into the future for your income sources is wise, but counting on them to come through and spending it before it’s in your hot little hands is very, very unwise. Repairs and medical bills might not be such a big deal if more of us had the wisdom and foresight to plan ahead and save.

So if you have some money put away, you’re probably in better shape than most of your peers. The next step in escaping debt is to spend less than you earn. Blah blah, I know – you’ve heard it all before. But can you actually do it? Do you have the ability to put that surplus $500 or $1,000 away instead of buying an extra piece of furniture or a new TV? The inherently obvious truth is that spending more than you have now, just because you’re counting on having it later, is just plain ignorant.

The third and final step in getting out of debt is to line up all your debts from smallest to largest. It’s that simple – don’t pay any more than you have to on any of your debts except for the smallest, which you should be paying as much as possible. When that’s paid off, lump all that extra money into paying off the next largest debt, and so forth. If you don’t discipline yourself, it’s likely that you’ll be in debt (or in and out of it) for the rest of your life. Pay everything off and then save, so that the next time you’re tempted to go into debt, you won’t have to.

Read lots more on multiple streams income – stop letting your money control you!

I’m sure if you ask just about anyone how much money is enough money, you’ll hear phrases like “financial freedom” and “live comfortably” thrown in pretty regularly. What is enough money to you? Enough so you don’t have to work? Enough so your kids’ college funds are full and your 401k is padded? Enough to have a vacation home and a third car?

The sad truth is that the difference between poverty and wealth lies far less in how much you make than in how much you spend. The reason that “the rich get richer and the poor die trying” has less to do with an actual dollar-by-dollar equation than it does the level of wisdom possessed by the person holding those dollars.

It is run-of-the-mill in our current day to take out loans that will take us years to pay off and to open credit card accounts that allow us to spend money we don’t have. Debt is no longer a foreign concept, and as it has become a normality, so have the world’s financial problems. We are not free from our finances, nor will many ever be. We’re chained to our money (or rather, the lack thereof) like slaves, spending much of our lives pursuing the almighty dollar.

“I owe, I owe, so off to work I go.”
- bumper sticker euphemism

That’s not to say that debt is always a bad thing; it can be managed effectively to achieve one’s goals and if kept in check it will allow us to do so. But as human beings, we sometimes have the tendency to always be searching for the next big thing; our one-time break that’s going to send our levels of success and happiness into the stratosphere. The fact is that spending money on temporary happiness doesn’t usually lead to more of it. We slave away at the jobs that take up so much of our time, for the single fact that we’re slaves to the money these jobs provide. By establishing multiple streams income we can start to think differently about the true price of happiness, and the real meaning of success. Contrary to popular belief, having the nicest house with the biggest television doesn’t equal the greatest amount of happiness.

Most people can’t imagine retiring until they’ve bought two of everything they could possibly ever want. My philosophy is to retire first, and then do I want – not the other way around. For now, I’m happy knowing that in a few years I’ll be able to spend my time pursuing what I love and have a passion for, thanks to my multiple streams income, while so many other people who squander their finances inefficiently are still working. Read on to find out about the various ways you can put your money, talents, time and other resources to work for you to create some passive ways to earn money and thrive.