Book review: Multiple Streams of Income

The classic book, by Robert Allen, written in 2000. Many consider it the book that is the father of the “side hustle.” Written in 2000, the book tries to distill all the lessons and ideas from Robert Allen’s 20 years of books and seminars. He attempts to show you how to earn multiple streams of lifetime income, using a variety of strategies – each of which he goes into a great deal of detail on.

The key parts of these strategies is that they can be used:

  • On a part-time basis
  • Working right from home
  • With little or none of your own money
  • With fewer no employees
  • Using simple systems that have a proven track record

 

Sounds like its right up the FIRE community’s alley, right?

 

Robert starts off with some basic explanation on the time-value of money, compound interest, and how to leverage that towards financial independence. He then covers some basic money skills you will need (valuing money, controlling it, saving it, using it to achieve financial independence). He finishes up by covering the three “great money mountains” that his streams of income are built on:

  1. The investment mountain (screening and filtering, timing in, timing out)
  2. The real estate mountain (finding, funding, farming)
  3. The marketing mountain (internet, network marketing, infopreneuring, licensing)

 

Streams of Income

  1. Stock Market Success: Here Allen goes through some basic lessons on investing (invest for the long haul, how index funds beat 4/5’s of money managers, and how you should start investing sooner, rather than later). His thought is to place at least 50% of your investment dollars in index funds, and just let them grow. He provides links to common index providers (vanguard, TRowePrice, etc.) as well as additional reading on the subject.
  2. Accelerated Stock Strategies: For 30% of your investment dollars. Here Allen goes into more aggressive stock strategies, He covers four basic systems to gain enhanced returns above & beyond index strategy, and goes into detail on each of them. They include:
    • Invest with Warren Buffet
    • Select Mutual Funds with the longest-term track record
    • Select Financial Advisors with the longest track records
    • Consider high-powered sector funds
  3. Options trading: For the final 20% of your investment dollars. This covers the highly leveraged strategy of covered calls, and call/put options. This particular chapter might be worth the cost of the book, as this particular type of investing can be very confusing. Allen takes the time to explain how to do it in detail, and provides links and methods to performing the trades. If you’ve ever wanted to find out about this type of investing, here is a short and simple 28-page chapter that can get you started.
  4. Real Estate: This chapter covers the basics of real estate investing, both for those who are looking to be landlords, and those trying to fix& flip. Excellent chapter to provide the basic tools and techniques for real estate. Allen divides the chapter into three areas:
    • Finding: How to do the research to find bargain properties in the right area
    • Funding: How to fund your real estate investing with minimum up front money
    • Farming: How to create cash from your real estate, primarily through buying & holding/renting
  5. Foreclosures and Flippers: Allen discusses short-term bargains here, primarily gained through foreclosures. He discusses some of the methods to acquire foreclosures (pre-foreclosure, Post-foreclosure, tax sales, etc.). He then discusses the benefits to be gained with quick flipping of properties. Much of this has been written of in much more detail on the internet and through TV shows, but he does cover a lot of the basics and pitfalls of the strategy.

In the next chapter, Allen goes into more refined real estate strategies, providing a good summary view of them (though you will want to do your own research on some of these complicated plans). They include:

    • Wholesale real estate (you identify and setup deals, then pass off to another)
    • Angel real estate investing (you provide capital)
    • Bird dogging (another investor provides capital)
    • Split for cash (splitting property up and selling portion)
    • Conversion (converting from one class of real estate to another)
  1. Paying other people’s taxes: In this way, Allen shows how you can purchase tax lien certificates on other people’s property for pennies on the dollar. You can then use the leverage of these liens to either get your full payment of tax funds, or repossess the property. Often this amounts to 16%, 20%, 25% or greater return. Depending on your state and local laws, the profits can be very good
  2. Network Marketing: Yes, network marketing can be another tool in your toolbox towards reaching a continuous stream of money. Allen goes through some of the problems in the past with network marketing, and some of the issues to be on the lookout for (need to buy inventory, etc.). He provides a list of questions to ask for potential markets you might get into, and strategies to select the right company, compensation plan and marketing system. Network marketing has proven itself to be lucrative for some in the past, so it should be something to consider.
  3. Infopreneuring: This is one that the FIRE community is very familiar with. It involves using your expertise/passion/hobby and turning it into a lifetime cash-flow stream. It could be a book, a how-to series of podcasts/videos or other mode of information. They key is to identify and research a market, produce a useful product, and market it. Allen provides some good questions to ask and methods to develop your opportunities. I think this is also a very useful chapter.
  4. Licensing: This is a step beyond Inforpreneuring and Network Marketing. The concept is to license your ideas to others, and let them do the hard work of brining them to market and generating income. You will simply take a cut of the hard work. You can also license others idea and do the work to profit from them, while paying them a portion of the income. Either way can work to generate another income stream for you.
  5. Internet marketing: Obviously, with the book written in 2000, this was a “new thing” and a new way to generate an income stream. Allen goes through a wide variety of ideas, most of which have become common place in our modern world. Still, its good to see Allen’s marketing mind go through all the potential uses of the internet.

 

Allen finishes his book with ideas on how to shield your income streams from others, including legal tax strategies, ways to protect your intellectual property, and methods to continue the streams past your lifetime, so your heirs can enjoy them as well.

 

All in all, and excellent book, and well worth a read.

 

So what have you read lately that you find interesting?

 

Mr. 39 Months

 

Uh – Oh. My Spouse is thinking……

The community typically has a situation where one spouse is “on fire” with getting to financial independence, but the other isn’t as easily convinced that this is the way to go, or how this might benefit/affect them. They will listen patiently to their spouse go on and on about effective tax strategies, paying off debt and high savings methods, but it doesn’t really sink in.

Maybe they pick up on the travel hacking early, because they see the benefit from that – and get a little excited. Still, even if you are sharing the rapidly accumulating savings, your prospective FIRE date, and count it down on a board, they just don’t get excited. They look at you with an amused smirk, pat you on the head and send you away.

Then something happens (bad day at work, a need to travel that they can’t meet do to a work commitment, etc.) and then they start asking questions. Are we really that close to retirement? How do you withdraw the money when we aren’t even 65 years old? How do we handle health care?

It is at this point that you know that it is starting to sink in – they are actually starting to envision a life where they don’t have to work, where they are financially free. It can be liberating, and it can be scary. If someone is just coming to the concept, they will be full of questions, and want justification for the answers (just like all of us FIRE true believers were at the beginning).

Well, the other night Mrs. 39 Months suddenly starting quizzing me on how you do a “ramp down” of your funds after you retire. I wasn’t sure if it was because of a bad day at work or if my comments had gotten through, but she was interested. After about 5 minutes of discussion, she seemed satisfied, though no exactly sure of the method. Still, I take it as a positive sign that she is coming to the realization that we are almost there.

So be patient with your significant other as you travel your road. It may take them a little longer, but they’ll catch up soon enough.

 

What have you and your partner discussed in your run up to financial independence?

Mr. 39 Months

Podcasts

 One of the best innovations in the last decade for those of us who travel a lot (especially by car) or who have long commutes is the podcast. A form of verbal recording, you can download them and listen to them at your leisure. No longer are you forced to listen to whatever is on the radio or to pack quantities of books on CD (or for those of us old enough, books on tape). While there are many who are saying podcasts are “overdone” and are on the way out, for those of us who are late-adapters to technology, this is a great innovation.

 The main benefit of podcasts is that you can choose the topics you want to listen to, so you can load up on cooking, woodworking, knitting – or Financial Independence! My personal preferences are for history, woodworking (odd, I know) and personal finance/FIRE.
 The hardest part is to find ones that you enjoy, and that provide you with the information and entertainment that you want. For that reason, I’ve listed on my blogroll to the right, some of the FIRE podcasts that I like to listen to. I will add to it as I find other ones that I enjoy, and feel that you folks would enjoy as well.
 After that, the only problem is finding the time to listen to them all!
 What podcasts do you like to listen to?
Mr . 39 Months

 

Reaching FIRE through Company Business Trips

For some folks, our work requires us to travel, either by car or by plane, to other parts of the country, where we perform our job duties. This travel can be both a pain and an additional source of income. I wanted to discuss some of the financial advantages of corporate travel, and how someone seeking financial independence can benefit from it.

Extra Salary

For the corporate world, travel is seen as a burden, something which has to be done, but which causes a hardship on the employee. Many folks have spouses or significant others, children, pets, etc. These have to be taken care of while the worker is “on the road,” which causes stress and problems for the worker. Because of this, companies are willing to pay extra for workers who are “willing to travel” and this can be quite lucrative.

I knew two engineers who graduated the same year, same school, and same degree. One got a job as an engineer locally, and was offered $50K/year + benefits. The other got a job with a consulting firm that required 90% travel – so they offered her $70K/year + benefits, and she got to take advantage of all the “travel hacking” that you have seen in the FIRE community. A 40% bonus just because, at 22, she got to enjoy all sorts of travel throughout the US.

Extra Income

Often you get the opportunity to gain extra income while traveling. This primarily is done by being offered a stipend for travel. Companies use stipends because it is easier to budget for travel that way. An example would be a food stipend, where, instead of you submitting receipts from restaurants, the company just gives you an amount of money each day to pay for your food – for example, $45/day. If you stay at a hotel that serves breakfast and eat/drink reasonably, you can pocket the remaining money as extra income.

I’ve seen companies pay for just the airline travel, and put in a stipend for the hotel, food, car, etc. Since a lot of travel is done by corporate execs, these stipends can be rather large, because the execs don’t want to stay at a Motel 6. You can take full advantage of this and make some dough.

Another form of extra income is the auto mileage. Most companies have a standard rate per mile that they will pay you for business travel, to cover fuel and maintenance of your car. This is based on an average mid-size car, with average gas mileage and maintenance costs. If you have a more fuel-efficient car (like most FIRE folks who judge purchases on things like that) or a car with less maintenance costs (maybe you do some of it yourself to save $) you can book some significant extra income from a company’s mileage reimbursement

Reduced Expenses

This is the area where you can get real “bang” for your travels. By taking time to be somewhere else, somewhere that a company is paying you to be, you can significantly reduce your expenses – all money that goes tax free to your bottom line. Some examples:

  • Home: If you travel extensively and are single, then there is no reason to get a large place to live, or buy expensive items for it – You won’t be there most of the time! Get a smaller place, furnish it sufficiently to take care of your needs, and pocket that money for the next several years. Keep the heat/AC turned down as well.
  • Auto: Instead of having to pay for fuel, tolls and maintenance to commute to/from work, your car sits and doesn’t cost you this. Maybe you don’t even need a car at all, and can just get by with Uber/Lyft and a bike?
  • Food: For periods of time, the food is on the company, so you can save on your food bill.
  • Entertainment: Again, your company is paying for you to be at another place, so you aren’t spending money on a lot of entertainment options during the week

All of these are ways to drop money into your FIRE accounts and get there earlier than expected.

Negatives of business travel

The reason that companies pay more for folks who travel is because it does suck at times. Sitting in airports or driving long distances, being away from family, strange hotels, strange food, etc. This can all wear on a person over time and that is why many folks do it for short “spurts” of a few years, and then move to a job with less or no travel. This is especially prevalent when someone wants to start a family. I have a peer who consulted for 4 years, and did 95% travel. Woke up early Monday morning, kissed his wife, on the road Mon-Fri, and got back late Friday night. He joked that he was a “weekend husband.” He finally joined my company when they wanted to have kids, and now travels about 25% = 30%. They just had their second child and are much happier.

I always told my students when I was counselling them on a job search to put “willing to travel” on the bottom of their resume. If you are young and want to make some money fast, consider extensive travel. Even if it isn’t for you, take the opportunity to do some travel for your company and pocket some additional funds to help you on your way to financial independence.

 

Any good road stories out there?

 

Mr. 39 Months

Monthly update – Nov 2017

Keeping it rolling, only 32 months from Financial Independence!

While September was a good month (1.26% gain), my October was kind of “middle of the road”, with a 0.47% growth. I started the month with $946K of invested assets (not counting savings), put $4,108 into my various accounts (401K, Roth IRA, brokerage), and ended with $953K. For the year, all total, I am still up around 8.26% (September really helped push me up)

Bonds and REITs were down a little in October (-0.3%), while the equity markets were up (+2.3%). My dividend portfolio (from my dad’s inherited IRA) is down -1.4%, and my value portfolio is down -3.2%. So again, my ability to pick stocks individually does not come close to matching the index fund investing method.

In the value portfolio

  • CSS Industries stock was up 4.2% for the month, and about 7.7% since I bought them a couple of months ago
  • Gilead lost -7.5% in October, but is still up 10.3% for the year
  • Taho lost -8.9%, and is down 13.7% for the year
  • Overall result of value investing play ytd is 1.8% for the last 4 months, or 7.2% annualized. Still not competing with the index funds.

For November, I plan on continuing to put my investment money into my bond mutual fund. I want to get my allocation more in line there with a 33% REITS/ 33% bonds/33% stocks plan. This will call on me to probably buy bonds each month for the rest of the year

Hope your Halloween was scary and exciting!

 

Mr. 39 Months.

Christmas Presents?

Many of us have skills and talents that we take for granted, hobbies that we have that bring us joy, just for the sake of doing. Mrs. 39 Months likes to knit and play the dulcimer. My younger brother has a CCR (computer controlled router) that lets him carve all sorts of things he can design on his computer. My older brother is an accomplished photographer, with an incredible gift to get beautiful pictures with limited, inexpensive equipment.

At a certain point in our lives, we stop needing “things” from other people, and its more the “thought that counts” when we are getting gifts. Often the gifts just sit there, unused, but we do remember that someone thought of us at the time. In that case, why not use your talent or interest to create a gift, instead of contributing to the consumer treadmill? It will save you money, and show folks you were willing to spend more than 5 minutes on them.

For me, I am an amateur woodworker, and I found a nice design for something small, but useful. I also had some old wood that has been sitting in the shop for several years, in the form of logs (my friend had a tree cut down, sawed up, and when he moved, he gave them to me).

So now I get to joint & plane the wood, cut it to size, create the joinery and complete the design. I should be able to get 8-10 presents out of this, which should satisfy us for most of the crew this year. It should take me about 4 weeks of off-and-on work to complete, so I have gotten started.

What do you guys do for presents? Anybody doing something really interesting this year that you would like to share?

 

Mr. 39 Months

Gone Fishin……

Actually, Mrs. 39 Months and I have taken a week off to visit North Carolina.

She is attending a Dulcimer conference, and I am scouting out potential sites to move to after we hit our FI goals. Geoarbitrage, baby!

This is Chimney rock, NC – quite a hike to get up and out there.

This is Hendersonville NC, a nice town with a thriving downtown and lots of shops, coffee houses and restaurants. Potential new home?

Hope everyone is enjoying the fall weather.

Mr 39 Months

Your Greatest Financial Decision

There is always discussion in the FIRE community about the way to pick stocks, the way to travel hack, or the way to reduce your overall expenses to more easily obtain financial independence. This is the “meat and potatoes” of the FIRE community, and like most of you, I really enjoy people’s thoughts, opinions, struggles and successes here.

I wanted to take the time today, to talk about what I believe is the most important financial decision that you will ever make, especially if you are seeking financial independence. That decision is your choice of spouse/partner.

I can’t tell you how many times I have heard/read interviews of FIRE folks, and they answer back “my spouse is more frugal that I am.” It’s that level of frugality, working together towards a goal that enables most of us to hit out financial independence goals, especially those who hit it in the 30s and 40s. There is a common theme you often here about folks dating/marrying – that you end up with your opposite (you are outgoing and they are more laid back, you like to spend and they are frugal, etc.). If you run into this and don’t discuss it before you get too serious, it could lead to all sorts of problems in the long-term relationship. In terms of FI, it could derail your plans.

There have been stories of prospective spouses who have called off the wedding, due to finding out how much in debt their partner is in. Depending on where you live, you could be responsible for some of the debts, and at a minimum, excessive debt by one of the partners will impact their ability to contribute to the finances of the couple.

Like many of you, I was lucky enough to marry someone who is more frugal that I am. I was always the one who ran the checkbook down to the lowest amount possible – even as I was automatically saving money in my 401K and IRA. My wife likes cash, so she has a significant amount of money in a savings account (not even CDs!). Still, this keeps her stress down, and I just treat that as our emergency fund/cash reserve and put my money entirely into other investment vehicles.

It’s worked for us for 31 years (with some bumps), but we certainly wouldn’t be where we are now (33 months away from FI) if I had married a “spendy” woman. I have friends and coworkers with spouses that like to spend (both male & female) and it certainly causes stress and affects their relationship.

So make sure you talk about finances to your prospective spouse, and ensure you are both on the “same sheet of music” in terms of your financial goals.

One last thing – if you are already married, and you’ve got significant money invested saved, and you overhear your spouse say “It costs $40, but I am not sure I want to pay that much” – give them a big hug and tell them you love them. They are helping you on your way to Financial Independence.

Mr. 39 Months

So what is your savings rate?

And what is the trend of our savings?

I finally got the savings bug big-time around the age of 36, in the year 2000. Up till then, I had only invested money in the 401K to meet a company match (typically 3% – 4%). I was focused on increasing my income, in order to pay for the normal things of life, as I understood them (house, car, etc.). By 1999 I had finally reached the point where my salary was paying for everything, without incurring additional debt.

Then in 2000 I scored a major pay increase (about 20%) when moving to another company. At the same time, the market tanked, and the money I did have in a 401K/Roth IRA seemed to evaporate overnight. I knew then, that I had to really get serious.

At that time, the word was to save 10% of your income – but I knew that since I was starting late (age 36) I needed to add more. I started around 10%, but immediately pushed to max out my 401K. The goal was to get to 20%, and eventually higher.  Note that this is on the gross pay (i.e. before taxes are taken out) so it gets harder as you make more money.

Year Savings Rate 5-year Trend
2000 9.9%
2001 10.5%
2002 12.5%
2003 14.5%
2004 16.5% 12.8%
2005 18.4% 14.5%
2006 18.2% 16.1%
2007 16.3% 16.8%
2008 14.6% 16.8%
2009 21.7% 17.9%
2010 21.6% 18.5%
2011 31.1% 21.1%
2012 16.2% 21.1%
2013 19.9% 22.1%
2014 19.2% 21.6%
2015 25.4% 22.4%
2016 29.8% 22.1%
2017 30.1% 24.9%

After ten years, I had paid off almost all my debt (just house) and was saving around 30%. I took a slight dip in 2012, because I took a pay cut my company’s 401K didn’t allow me to put in very much. I chose to concentrate on paying down the mortgage and getting debt free.

Well, I’m finally back to 30%, and based on some monetary movement, I should be able to bump it up to 40% in 2018. I’m proud of my trend over the last 17+ years, and the fact that I’m set to be financially independent (without counting on Social Security) in 2020.

So how has your savings rate trend been?

 

Mr. 39 Months