Automating Passive Income

In The Passive-preneure I talk a lot about automation, and you’d know that if you’d picked up your extremely inexpensive copy today. One of the ways I’ve gone about automating my own passive income streams is by using one to fund another, automatically. I’ve discussed ShareBuilder in the past, and how I utilize their automatic investing options to “set and forget” my investing plan. Well, I also utilize their direct deposit option to help this along.

In my Kindle Direct account I have directed all income to my ShareBuilder account VIA direct deposit. This lets me move all my money into investing, and never have to worry about accidentally spending it. Then, once the threshold is reached my automatic investments kick in. Then I’m able to keep track, and get my dividend reinvestments from these. Thus, one passive income stream (my eBooks) funds another passive income stream (my Dividend investing) which I’m also utilizing to build up the capital to purchase yet another passive income stream (my rental properties).

You can see from this that it’s a domino effect, and if you have multiple streams, such as eBooks and membership fees on a website, for instance, you can direct multiple streams into the same account, and build those streams faster. Turning them from a passive stream, to a passive river.

Pictured: Your income

Pictured: Your income

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Drop Shipping and eBay

If you know anything about eBay, you’ve probably heard about drop shipping. If not, you’re about to. Drop shipping seems like such a simple thing to do, because it’s literally being a middle man. You take the money from the buyer, and you pay the warehouse, and they ship the product to the buyer. You never have to handle the merchandise yourself, and make a profit for your time.

If you haven’t guessed it yet, this can be automated, and I’ve covered this in The Passive-preneur, so I’m not talking too deep about it here. What I’m going to talk about here is my own experiences with eBay and drop shipping.

It’s not easy. Let’s get that out of the way right at the start. You can’t just assume you’re going to post a bunch of items and make a lot of sales. Because it doesn’t happen. I’ve sold some items, but I’ve never invested the time or money into the marketing side of things, and thus have not made anywhere near enough money to say that it’s been worth my time. That said, I know there is the potential for me to. I just haven’t had the need to do it, or the desire. I like to play around with different types of passive income streams, but I only invest in ones I want to have an investment in.

That said, I’m considering investing in drop shipping. I’ve started focusing a bit on a particular niche: Security and Surveillance, because the gadgets are cool, and it fills an actual need in the world. I like to make people feel secure, and safe, so this particular niche suits me. If I don’t make money, that’s fine, because I’ve not spent a ton of money on it ($0.80 currently in listing fees) but if I do make money on it, I might use some of that money to hire a virtual assistant to help me with the process.

I use a drop shipping company that allows you to insert excel spreadsheets of orders and will mass purchase the orders for you. This allows me the ability to hire a virtual assistant to compile these sheets for me, and list new items for me. I could also then put them in charge of a small budget for advertising, and if business became good enough possibly even a small website store. The possibilities are there, but the idea is to focus on a single niche, begin on eBay, build my reputation there, and use that social capital that I build up on eBay to build credibility into my own website, as well as eBay. Once I’m running my own website, I can not only remove part of the VA’s job by automatically compiling the excel files VIA website code, but I can also integrate with my drop shippers API system and automatically place orders.

This allows for automation, but it is not cheap. The API costs money, and I’m not ready to invest in it until I know I have a steady customer base.

This is why you’ll find in The Passive-preneure that I don’t discuss passive income as some get rich quick scheme. That’s bullshit. Passive income isn’t for the feint of heart, and if you think you’re going to jump out of the gate with a million dollars in a year, you’ve been sorely misled.

Stay tuned to see how this little venture works. I’m not investing a lot of time into it just now, but I’ll keep you posted.

Alternate Forms of Investing

On average my dividend paying stocks return a yield of around 6%. In plain English, that means for every dollar I invest in, I earn $0.06 per year. Sounds like a lot, but there are a few things you don’t think of. First and foremost, stock price changes. So if price goes up, value goes up, if price goes down, value goes down, so I never know exactly what the return is, unless I want to sit down and do the math.

Ain't nobody got time fo dat

Yea…what she said

I’ve started looking out for different ways to invest my hard earned cash. First I swung by the race track, and quickly realized that doesn’t work. The next step was a guy named Tony out behind a bar, but his eyes were just a bit too red and twitchy for me to trust my cash with him.

Then I looked at Kiva, again. Kiva is a great program, and if you’re the altruistic type, like I am, you should sign up and join the Capitalist Cares Kiva Team. Together we can help many, many, people. But the thing is, you won’t be making a return on your investment. So, it’s more of a donation that you end up getting paid back. Which is great, don’t get me wrong, because I can drop some spare cash into the account, send it out into the world, help people out, and get it back to help someone else. That’s fine.

But I want investments. But looking at Kiva, I knew I had Microplace that I could fall back on. Or, so I thought. Turns out Microplace stopped doing new investments in January.

You and me both...

You and me both…

So what was I supposed to do? No interest from Kiva, no Microplace to fall back on…of course I went to Google. You know me too well, digital reader. You little scamp.

So I hit Google with the very narrow search “microlending platforms” and, of course, it returned a gazillion results that meant absolutely nothing to me. So I hit it again with the better term “microlending platforms that will make me a millionare” and Google laughed at me. Audibly. Through the speakers. (This may be an exaggeration.)

I eventually stumbled across LendingClub.com, which, obviously I wouldn’t be allowed to join, because Maine is run by a fucking idiot. But when I stumbled across that, I also found Prosper.com[?], which I did a little research on, and it is a microlending platform that allows you to purchase portions of debt, or notes, from borrowers. They even have a trading platform which lets you trade said notes with other lenders. All this for the minimum investment of $25. Sounds a lot like Kiva to me.

Squirrel-lelujah!

Squirrel-lelujah!

So I’ve got an account all setup now, and I’m waiting to get my account verified so I can deposit some cash and get to investing. I’ll let you know how it works. If it does work, though, the yields are promising. They narrow down each account type by it’s risk, with the lowest risk having lowest reward, highest risking having highest reward. Lowest risk also has the lowest rate of default, with highest risk obviously having the highest rate of default.

I think I’ve found the sweet spot right in the middle, though. Their yield after expenses and defaults for their C rating (ratings are AA, A, B, C, D, E, and HR) was around 11%. Which is much higher than that money would be making in dividend paying stocks. Don’t get me wrong, I’m not replacing my stocks with this, but I might use it as an alternative, possibly take a portion of the money that I would be investing and deposit it to my Prosper account, and see how that works.

For now, though, I’m risking $25, and seeing how the entire process works from start to finish.

Another note, just for some transparency, I’ve also signed up to become a Prosper affiliate. I’ve not yet been approved, but if I do get approved, and I fall in love with the service, you can be sure that there will be a link to click, a link that will let you sign up for them, and give me some money for the trouble. Don’t worry, if I don’t care for the system, or find it too risky to suggest, you will not see that link. That is my promise to you.

A Change in the Publishing Air

Some of you that know me know I own a small independent publishing company. Those of you that didn’t, now you do. By small I mean small, less than 10 published works, and all from a single author. Myself. That said, I’ve been seeing a change in the air lately. There is a big draw to become indie published, which is exactly why I started the company–so I could be indie, without being indie. I wanted a publisher’s name in the credits, but didn’t want the stress of finding a publisher.

I’ve started considering how I could use this changing paradigm to make profit. With the expansion of print-on-demand, and the increasing quality of such services, not to mention the expansion of eBooks as a competitive reading medium, and the inexpensiveness of eBook production, I really do see us on the precipice of a new age in publishing.

It’s for that reason I’ve started planning out a new publishing contract, one that is weighted in favor of the author, and not the publishing house. Costs can be cut by utilizing freelancers on a project-by-project basis, and maintaining a vastly online presence–all of which I have experience with, and can setup without much effort. As always, I’m looking for no-hassle, passive income, so I’d be hiring a single full-time assistant, an editor who would be able to sift through the submissions for the cream of the crop. We’d then submit those for editing to one of the stable freelance editors, sending back the results to the author.

I’m aiming for the middle ground between Vanity Publisher and Traditional Publisher. I won’t take anything and everything, but I don’t want to have to invest so much work that the financial side of it requires a bigger cut. I’d also be looking for a very non-traditional, free flowing contract. Contracts would focus on works as works, not works as a means of enslaving the author. Authors need to be free. They cannot thrive in a relationship that requires they be leashed to you.

I’m considering this: A high royalty (50%) on earnings until the expenses are paid off, or until 1 year of publication has elapsed (meaning if the book takes 6 months to edit, and is released on June 1st of 2014, June 1st of 2015 the royalty would switch), whichever happens sooner. During that first year all editing, typesetting, and marketing costs would be covered by us, with the author and / or their representative having an equal seat at the discussion table for all of it. Once everything is agreed upon, the publishing will happen. Once the expenses are covered, or a year has elapsed (again, whichever happens sooner), the royalty would then convert to 15%. Again, this is the publisher side. That means that we (the publisher) would sell the book, and if it made $1.00, we would pocket $0.15, the rest going to the author.

Obviously, due to the cost paradigm, the marketing efforts for that work would dry up after the first year. The author would need to cover a larger portion of advertising themselves, etc. And we would not be able to cover major events, such as book signings, but these are all things the author would have the time to focus on.

The important thing is getting a professional book to market, without the hassle of funding it yourself, and if you want someone else to handle all of the decisions and just get to the writing, we could make that happen to.

What do you think of this type of publisher plan? Could it work? Would you use it? Am I crazy for even considering it? Let me know in the comments!

Expansion on 3 Months To Profit [With Formula]

So the other day I posted an article about having patience with your investing, in it I mentioned some math on how I minimize the commission fees. Now, this math, though not incorrect was incomplete. It did not take into account sales commissions, which can be much higher than purchase commissions, as well as it did not actually detail out the math used. So I decided to expand on this math a bit.

For this math I’ve added in variables for sales commissions, as well as a variable to allow you to define exactly how many months to profit is acceptable for you.

\lceil \lceil (CPT_B + CPT_S) \div DPS \rceil \div M \rceil \times CPS

Now, in this instance it might be a bit confusing. Let’s start by defining the variables:

CPT_B = Cost Per Trade (Buy) \newline CPT_S = Cost Per Trade (Sell) \newline DPS = Dividends Per Share (\$) \newline CPS = Cost Per Share \newline M = Months

Not that hard to understand the rest now. If you’ve never seen them before the \lceil \rceil signs can be confusing, but they just mean round the result up to the nearest integer (I.E. if you get 22.22 round to 23)  and use the result for the rest of the formula. The result of this formula is the amount of money that you need to invest into that particular trade to get your specific Months-To-Profit from the dividends. In this instance, DPS is normalized to Monthly, so if your particular stock pays out $0.04 per quarter, you’d take that and divide it by 3, the number of months in a quarter, resulting in $0.013.

You’ve also seen me lauding the benefits of compound dividends in the past, but this calculation doesn’t look at that at all. Now, obviously, you’ll see some of this if you get a true monthly dividend payer, in a 3 month time span, and see a larger profit, but that’s not what this is about. It’s simply a way to recover the commission fees before you sell. This way, you know if you’re actually going to profit.

Have a better method, or formula? Post it in the comments and let us know! This site is all about spreading the knowledge, and I don’t presume to be the all-knowing on these subjects. This is simply what I’m currently doing, so if you have improvements, or any information that can enhance the discussion, post it so we can all enjoy it!

Frequent Trading VS. Pre-planned Investing

Coming up is my 1 year anniversary with active investing. For the last year I’ve used a trading style of frequent trading. To this point, I have a total profit of (-$47.20). That’s a negative amount, because currently my portfolio is worth less than what I paid for it. This, obviously, is not a good thing. But it was expected. Frequent trading means frequent commissions, and as I’ve posted in the past, commissions kill you.

So today I’ve setup my next type of investment strategy. For the next year I am going to move away from frequent trading to pre-planned investing. I’ve setup my automatic investments, as well as my automatic dividend reinvesting, on Sharebuilder. I’m setting up automatic deposits each paycheck, and once my account has reached the threshold of $522, I will invest in my diversified collection of stocks–all monthly dividend payers. I have used my 3 months to profit calculation to figure out this $522 figure, based on the dividend amounts, and the current price for each share.

To be open, below I will list the results from my last year of trading. Included is a dividend payout which will not close until tomorrow, but will be a difference of pennies.

STOCK TOTAL PURCHASED TOTAL SOLD PROFIT
TEU 65.0221 65.0221 $6.84
BAB 4.0772 4.0772 (-$17.40)
INTC 3.0778 3.0778 $13.24
O 4.9326 1.5408 (-$49.89)

Diversification

Anyone that knows me knows I’m slightly insane. What I mean by that is I tend to do a million things at once, and whether it looks it or not, I have a method to my madness. I was chatting up a friend of mine today who just recently released his first novel, pre://d.o.mai.n, about indie publishing, and the money side of things. I, myself, have published a few books of my own, independently. I’ve made enough from the sales of the books to cover the costs incurred by creating the books, and give me enough left over for a celebratory coffee. Which I’m ok with, because I honestly never did it for the money.

That’s where our conversation rested. As a capitalist I have a desire for making the most profit that I can, but at the same time I understand the value in my time, and the time involved in marketing a book is far too high priced for what I would see as a return. Instead, I allow my books to sit on the market, free to be purchased if you stumble across them, and I mention them from time to time, building links to their purchase pages. This allows me to gradually earn money from these books, without the stress of “I need to market it, why isn’t this working, I’m wasting my time!”

I understand that as those books sit, earning money, that I would have ended up writing them either way, because I love to write. The selling is simply a way to get people to see it. The same goes for the many code snippets that I’ve developed. They sit there, about once every couple months I receive an email saying I’ve had a sale. Eventually, I earn enough to get a deposit to my paypal account.

This has me thinking of all the ways I diversify my income streams. So, I decided that I’d list these here for you, and myself, so I can get an idea. Now, I won’t bother adding in how much I make because I’ve only just begun, and none of these make much money at all–in fact some of these are so new that they’ve earned me a resounding $0. But the more I nurture them, the more I add to them, the more I end up making.

Streams

  1. BinPress (Code Snippets)
  2. Amazon (Physical Books, Kindle Books, Affiliate Sales See more here about affiliate sales)
  3. Stocks (Dividend Paying)
  4. Day Job
  5. Android Apps
  6. Facebook Apps
  7. Freelancing (Code, Tech support, Writing)
  8. Blogging (Ad revenue)

There may be more streams that I’m forgetting right now, that I haven’t nurtured enough. There are even others that haven’t come to a starting point yet, such as my rental property revenue stream, which I’m hoping to start within the next 5 years. That said, these are all very good starting points, and as I nurture them, supplying each with it’s required form of fertilizer, I’ll start seeing growth in my income stream, and I will be able to use these income streams to fund the development of newer income streams.

What do you do for income? Do you have any side income streams that you nurture? These income streams, have they become a required source of income, or is it all extra? Leave the answers in a comment below!