Beating Broke

Personal Finance from the Broke Perspective

Why I Like Passive Income

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When you’re in debt, and trying to escape from the cycle of debt, the one thing that seems to dominate your every thought is paying off that debt.  Far too often, those of us who talk about debt and finances regularly tend to focus on debt as well.  We focus on paying off debt, eliminating debt, and ways to spend less money so you free up more money in your budget to pay off that debt.  What we don’t talk about often enough, in my opinon, is making more money.  In many ways, increasing your income is just as important to your fight against debt as staying disciplined in paying your debt off.

I don’t know about you, but I often feel like my income is capped.  In any job, you are either paid a yearly salary, or paid an hourly wage.  In that way, you’re income is capped.  If you’re paid on a salary, it doesn’t matter how much you work, you only get paid a certain amount every pay period.  If you work hourly, there are only so many hours that you can work in any pay period.  There are always ways to advance yourself through the workforce, and up the ladder at work, but your income is still capped.

Uncapped income.

Passive Income Cash Machine
img credit: Whatleydude on Flickr

One way to increase your income, that doesn’t require that you work all hours, and that doesn’t cap your income is through passive income.  I’ve talked about it before here, and here, and here.  The ideal definition of passive income is income you earn without putting in any work.  And, maybe in an ideal world, that type of income would actually exist.  In our less than ideal world, truly passive income is very hard to find.

How I define passive income

I like to define passive income in somewhat more liberal terms.  To me, any income that I can earn with a minimal amount of work is passive income.  If I can make income off of something that only takes me 30 minutes a month, I consider it passive income.  Anything that continues to make me money long after I’ve put the work in counts too.  It’s like Ronco income.  “Just set it and forget it!”

For me, my blogs and websites are passive income.  A majority of the income I make off of them is income from posts I’ve already written.  The work has already been put in, and it would continue to pay me even if I quit writing.  My traditional stock portfolio is a passive income.  I did the work early on, earning the cash to buy the stocks, as well as doing the research to pick the stocks, and many of them pay me dividends on a regular basis.  That dividend payment is a passive stream of income.  Yet another stream that I take advantage of is my Lending Club portfolio of peer-to-peer loans.  (See my latest report on LC)

Other forms of passive income can include things like royalties, patents, and rental properties.  I’m sure if you think hard enough about it, you’ll find several other streams of potential income that would fit my definition of passivity.  (Share them in the comments!)

Why do I like passive income?

Naturally, I like passive income because I’m lazy.  😉  After all, what could be lazier than earning money while you sit on your behind and watch soap operas on T.V.?

“Naturally, I like passive income because I’m lazy.” — @beatingbroke (Click to Tweet)

As much as I like that reason, the real reason is a bit more explanatory.  I like paying off my debt.  I like the ability to do that while still enjoying life.  And, as many of you can attest, doing both of those things can sometimes be somewhat difficult.  Balancing the expenditures that can come enjoying life (even a frugal one) with paying off your debt is troublesome.  The best way that I’ve found to try and do both is to work hard at paying off debt, while working hard at increasing income at the same time.  Without passive income, the only way to increase income is to work more hours at your hourly job or to negotiate regular raises at your salary job.  Recently, it’s become even more difficult to do either of those.  Passive income becomes the last, best way to increase your income with little to no continuing work output.

Why do you like passive income?  What do you consider to be passive income?  What are some of your passive income streams?  What are some that you’d like to take advantage of?

Growing Potatoes in Containers

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As part of my foray into container gardening this year, I decided that it would be fun to try my hand at growing some potatoes.  I’d done a fair amount of reading, and it seemed like growing potatoes in containers was pretty workable.  I’d seen several examples of people growing them in old tires stacked 4 high, fencing towers stuffed with straw, and some much more elaborate wood sided towers that allowed for taking the bottom rung off and pulling potatoes out from under the plant.

The re-purposed container that we already had, potatoes already planted.

When it came time to plant my potatoes, I decided that for the first time around, I’d just use one of the larger containers that I already had laying around the yard.  I’d previously used it to try and grow some flowers in, and while those turned out fine, some produce would be even better.  I also found and picked up another container that I wanted to give a try with potatoes.  It’s a bag made specifically for growing potatoes in, called, wait for it, Potato Planter.  It’s kind of cool though.  It’s made out of the same material that those blue tarps are made out of, and is designed with a velcro flap near the bottom of the bag to allow for you to open the bag and pull some potatoes out of the bottom while letting the rest of the potatoes grow near the top.

So, armed with my containers and a couple of bags of topsoil, I set about planting some potatoes!

Steps for growing potatoes in containers:

  • Potato Planter Packaging © by thatedeguy
    Fill each container with about 6 inches of soil.
  • Cut your seed potatoes so that each piece has about 2-3 eyes on it.
  • Place your seed potatoes onto the soil.  (I’m sure there’s a scientific spacing you should observe, but I didn’t.  I placed them about 6 inches apart.)
  • Cover the seed potatoes with a couple of inches of soil and water thoroughly.
  • Water as needed.  (Remember that containers dry out faster than your garden will, so they need more frequent watering.)
  • When the plants are about 6 inches tall, add more soil until the soil is about 2 inches from the top of the plant.
  • Repeat until the container is full of soil.
  • Continue to water, and wait.
  • Potato Bag Started © by thatedeguy

    After the plants have flowered, and the plant itself starts to yellow and die off, give the potatoes about a week to two weeks to mature, then harvest them.  (This step and the ones following are purely from my research, and not from experience yet.  I could be way off!)

  • When you harvest the potatoes, set them out in a warm, dry place to dry.  This is supposed to allow the skins to harden up a bit for better storage.  (One downside here is that the second the potato gets to a harvested state, the natural sugars in the potato begin converting to starch.  I’ll be trying a few fresh from the ground and some that have been “hardened” and see how much of a difference there is.)
  • Repeat next year!

So far, I’ve gotten as far as planting, and adding soil to the potato containers.  I’ve got one more batch of soil to add to the containers to fill them up with soil, then it’s just a waiting game as the plants grow potatoes and I wait for harvest time.  This year is a bit of an experiment, as it’s our first year of dedicated container gardening, as well as the first time I’ve ever grown potatoes.  Rather than add too many variables to the mix, I just planted some seed potatoes that I got from our local grocery store.  If I recall, they were the Red Pontiac variety.

Next year, should this year be a success (and it’s looking like it will be), I would like to order some seed potatoes of different varieties.  In particular, some purple potatoes.  Mostly, just because I think they look cool!  I’d like to try a few of the heritage/organic varieties too, and see if there’s much of a difference.

Have any of you ever successfully grown potatoes in your gardens or in containers?  Got any hints or tips for me?  Suggestions for varieties to grow next year?

Ramit’s Big Wins Hype

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There are many people around the country that seem to think that Ramit Sethi is the worlds answer to their financial problems.  If you aren’t familiar with Ramit and his platform, it’s a platform that is based off of a no-nonsense mantra.  Instead of pushing people to count their lattes and create budgets, he pushes them to find ways to make more money.  He does that through several classes, groups, and even a book.  In a way, he’s the polar opposite of Dave Ramsey.  Full of ego, and unabashed vigor for his product, he’s unafraid to let someone know when he has no use for them, or to tell them to get lost because they aren’t the readers he wants. There’s nothing wrong with that, really.  He knows who he’s most likely to help, and knows that he’s unlikely to offend any of them with his ranting.

heart latte © by thepinkpeppercorn

Earlier this week, he posted his Big Wins Manifesto.  I’ll warn you now, it’s a manifesto, which apparently means that it needs to be fairly long.  Like most of what Ramit writes, this manifesto grates at me.  First, he starts off by comparing two fellows who are trying to get themselves a better financial life.  The first, “John”, is his example of someone trying to improve his financial life by way of budgets, latte reductions, and penny pinching.

John, 28, earns $62,000/year as a project manager. He used to have $8,200 in credit card debt from overspending, but he’s been slowly paying it down over the last two years and now it’s at $6,400. How? He tried all the typical personal-finance advice: He set up a budget, he tried to cut back on his daily lattes, and he made sure to make a list of goals he wanted to achieve. Yet last week, he took an honest look at his life and realized he’s still treading water. Despite paying off part of his debt, he still has years ahead of being in debt — plus no real savings, no investment, and something always comes up, causing him to yo-yo back and forth on his goals.

Are you kidding me?  The dude makes $62,000 a year and only managed to reduce his credit debt by $1800 in 2 years?!?  That’s barely the minimum payment.  If that’s the best you can do on $62,000 a year, you aren’t even trying.  And, Ramit?  That’s one of the worst examples you’ve ever used.  I understand you’re using some psychological sales pitch or whatever, but at least make it realistic.  Seriously?  You’re trying to tell us that the dude used a budget, cut his lattes, set goals, and he only managed to reduce his debt by $75 a month?  That’s got to be the most self-destructive example you could come up with.

Then, his counter example.

Chris, 32, earns approximately $120,000. Four years ago, Chris was making about $60,000/year but he was barely getting by — he had $50,000 of student-loan debt and, most days, would eat the free snack bars at his office instead of buying lunch. Yet within 4 years, Chris paid off $50,000 of debt, amassed a savings account of tens of thousands of dollars, and more than doubled his salary. To do this, he set up automated systems to pay off his debt. He turned his skills into a side income to earn over $1,000/month on the side. He knew he was slightly socially awkward, so he spent time joining courses to improve his social skills and ended up negotiating multiple salary increases — including over a $50,000 raise two months ago.

Chris is the MAN!  Can you believe he paid off all of that debt, and increased his income by that much!?!  OMG!  It gets better though.  As you can guess, Ramit would have you believe that Chris did all of that while doing actions that he prescribes in his book, or any of his programs.  The funny thing, in both examples, is that Ramit never once talks about anything other than the people’s financial situation.  Here’s John, his financial situation, and how terrible he did at setting a budget and sticking to his new spending habits.  Here’s Chris, his financial situation, and how AWESOME he did when he followed Ramit’s teachings!  But, when you really get down to it, Chris worked his butt off, both in his full-time job, but also in a side job (the $1000/month on the side), and then spent time taking courses to improve his social skills.  How ambitious.  Parts of me wonder how much free time he found himself with during that time.  Or how much he finds himself with now that he’s successfully negotiated multiple salary increases.  Can anyone give me an example of any place that would give you a $50,000 a year raise where your responsibilities at work wouldn’t increase at least on the same scale?  I’ve got news for you.  Nobody is going to pay you twice as much to do the same amount of work.  They’ll just fire you and hire John instead.  But, hey, if you’re only objective is to make a ton of money so you can say you have a ton of money, then by all means, follow Chris in his journey.

But, the manifesto isn’t about the life quality.  It’s about “BIG WINS”!  It’s about making changes that produce results, now!  By far, the best part is towards the end.

Next time you hear the same old tired advice of keeping a budget, or cutting back on $2 lattes, ask yourself: Has that really worked for the millions of people who’ve tried it? Are they really not “trying hard enough”? Or is there perhaps a systemic problem urging people to waste their limited cognition on near-meaningless tasks with little reward…and should we instead focus them on high-leverage areas that will result in massive payoffs?

Define reward, Ramit.  Also, while I’m sure you can find plenty of people for whom a budget and cutting back on lattes hasn’t worked, you can also find plenty that it has worked for.  Many of whom are the experts that you so easily scoff at for suggesting others do the same.

Now, I’ll be plain, I’m not Ramit’s target audience.  I’m in my early 30’s, with a family, a house, and a dog.  I choose those things over the freedom to be as mobile as I would have to be to take advantage of most any of the methods that Ramit professes.  I choose to have quality time with my family over working the hours it would take to negotiate anything resembling a significant raise.  I don’t let money have that kind of control over me.  If it has that kind of control over you, I suggest you think twice about that.  Money has plenty of use, but not at the expense of the quality of life that I desire.  Further, Ramit likes to paint the picture in black and white.  He rails against budgets, cutting back on lattes, and basically any of the advice that doesn’t fit into his “Big Wins” philosophy.  Just like the rest of the world, the world of personal finance isn’t black and white.  What works for you, might not work for me, and what works for me, might not work for you.  And, what works for Ramit doesn’t work for me.

Here’s the bottom line, folks.  A budget, cutting back on lattes, and pinching pennies can, and does, work.  It isn’t instant.  It takes hard work and dedication.  The same hard work, and dedication that anything that Ramit teaches does.  In fact, I’d say a combination of the two is likely a good solution.  But, to write off one for the other is very much like saying that a bicycle won’t get you the same place as a motorcycle.  They both go the same places, it’s just that the method, effort, and reward are slightly different.