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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Getting Serious About Credit

For the longest time I haven’t cared about my credit. This is stupid, a very stupid mistake, that I have made. Not that my credit is irreparable, it’s simply bad. What happened was simple. I moved out on my own as soon as possible, at 18 years old. I had no practical experience handling my own finances, and didn’t know how to save money. Worse yet, I didn’t know how to keep up on bills. So, I defaulted to just not paying anything. As you can imagine, this became bad really quickly. I became very far in debt, and I am still digging myself out of that a little at a time.

But it’s time to get serious.

Here I am nearly 10 years older, a wife, 2 kids, and dreams of owning my own home one day. Initially I had hoped to pay for that home with cash. And if I wanted to wait another 10 years to buy a house, I probably could. Thing is, I don’t want to wait. Neither does my wife. Nor my children.

So over the course of the next year I’m getting extremely serious about paying off all of my debts, including both my wife and I’s student loans, totaling approximately $78,000 on their own. Can we pay them all off in a year? No. But we can get the rest of our debts paid off, and get current on student loans, and hopefully improve our credit scores to the level that we can get a mortgage, thus saving ourselves even more money per month which we can devote towards our student loans.

It’s time to start focusing on the future.

This year we’re set to receive approximately $8,500 in tax returns. A large portion of this will be used to completely pay down my wife’s credit card, as well as my own, which we will then strategically use to transfer past due debts to current debts. The trick is to not transfer too much at once, and pay it off quickly. This way we can improve our credit by maintaining a good standing with our credit card company, while at the same time removing previous debts from our history. It’s my assumption that we can not only pay off all of our past due debts within the next year, but by doing so this way we can begin down the path towards credit score recovery.

Another part of the process is going to be growing my investments. As you’ve seen from my previous pasts, my portfolio is not that large. I plan to use this tax return to increase my holdings ten-fold, all with my dividend investing plans for 3 months to profit. The plan for my stock portfolio at this point is to develop it into the down payment for our mortgage. Allowing the dividends to work for us, and collect gradually while we improve our credit, so once our credit is to the level that we can potentially get the approval, we’ll have the down payment ready to go.

Obviously this is the start down a path which I have not yet completed. I bring it here so you can see how I do, and see if this strategy works for me, or maybe even if it doesn’t, it might work for you. I’m not an expert–if I was, I wouldn’t be so far in debt–I just have been forced to teach myself ground-up the financial world, and enjoy spreading my self-learned lessons when I can.

If you have any suggestions on how to quickly pay off past due debts without incurring even worse results, leave them in the comments.

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!

Limiting Your Risk

The stock market, to me, is the arena of the Capitalist Gods. It’s a place of financial battle that one might enter without risk of destroying anyone else for personal gain. Yes, I do understand that for each win, there is a subsequent loss. The thing about the stock market losses is that to earn a loss, one must gamble. I don’t feel it’s my duty to protect a gambler from losing. It’s up to him to decide not to gamble in the first place.

Now, for me, I don’t invest a lot. Whenever I hear people talk about investing in small amounts it’s $1,000 here, $5,000 there. I’m about 1/100th of that. I tend to invest about $50 at a time, which, I’m sure you can see, costs a lot in commissions. Now, I’ve come up with a few ways of covering these costs, and limiting my risk as I do so.

Invest In Dividend Stocks

This has been lauded for years as the best way for long term investors. I’ve found, though, that dividend paying stocks can help limit the risk of your entire portfolio. When I designed the spreadsheet for my portfolio, I designed it with many, many, different formulas. It breaks down the portfolio-wide profit / loss, but also on a stock-by-stock basis. Now, by using a dividend reinvestment plan through my broker, which is a $0 commission, I can limit not only the commission, but the stock price. I don’t consider dividend purchased shares as a cost so when I insert them into my portfolio, I give them a $0 price, and a $0 commission. This essentially lowers the average-price-per-share, as well as the average-commission-per-share price.

Diversification

Now, the dividend plan I detailed above works well for a single stock, but you really don’t see the benefits until you’ve added numerous stocks, different types of industries, both dividend paying and non-dividend paying, quarterly, monthly, you get the picture. The trick to the dividend plan is that should you lose in one stock, the dividends can help balance out the loss of the entire portfolio. For instance, currently I’ve purchased and sold two stocks. One, a small $5 dividend paying stock, of which I purchased 60+ shares over time. The other I owned just two shares of, at a cost of nearly $31 per share. The larger I sold at a loss. This loss was $10.45. Life events happen, and you cannot always wait for the market to correct. But, I had already sold my other stock for a profit of $13.79, giving my entire portfolio a profit of just over $3. Now, take into account that I sold both of these stocks for less than the price I paid for them. Yes, both stocks had lost value in the time I owned them, down below the original price I paid, but due to the dividends on the first, the entire portfolio had a profit.

Invest What You Can

Yes, I tend to invest about $50 at a time. That’s because that’s what I have to invest. I’m not rich, by any means, just ambitious and intelligent. That said, I’m not opposed to investing more when I have it. For instance, when selling off one stock, I will generally invest the profits in a single purchase, to limit the cost of my commission.

Know Your Options

In the broker I use there are many ways to invest. Knowing my options is the only way to limit my cost. For instance, I can make manual purchases, but I can also be patient and allow the auto-investment system to invest for me. Doing so lowers my commission by $2 per stock.