HAVING MONEY WORK FOR YOU

Today's reader email is from another youngster who is towards reaching financial independence really fast. If you are as wise as this young professional, you may soon be having money work for you.

Hi there

I have recently sold my car to replace it with something cheaper, I freed myself from debt (Retail accounts, and credit card) with R75,000 to spare.

Aged 26 I would like to invest this money in hopes to buy my first property at 30 with a massive lump sum.

I am thinking of putting it in some type of fund where I can add about R2,000 a month to it. I would like to have the money available to me within 3 to 4 years time, and often I come across 5 year type of funds only. What would you suggest if the best route to take with this?

K

Well done on choosing to live your life in your terms K. I wish more young people were half as wise. As this email is very similar to the one I published two posts ago, I will only point our reader to it at: Diversifying a Portfolio. I may also recommend: Building Wealth from your First Job. Now onto the interesting stuff that may also help this reader and others on having money work for them.

Having Money Work for you
My friend asked a question along the "money working hard for someone" lines today. As expected I was too excited to engage in the debate and because I am a bit of a nut case, I am still as excited to repeat myself here now. The fact is that, you will never be able to work harder than money is capable of. I learnt this awesome truth over the years. You are just one person with limitations. Your money on the other hand can multiply itself forever. So why do what your money can do for you? Look at the examples below.

Compound Interest
A simple example of a baker who bakes cookies to sell them to various office workers. As a baker, you are only capable of baking a finite number of cookies and make a finite amount of profit per day, because you only have 24 hours minus 8 sleeping hours, 1 bath hour, 1 stock buying hour, 1 social networking hour, 2 other chores hours, etc. Do you realise just how limited your time is? Anyway you do bake cookies and make your nice profit daily. From that profit you decide to put R2,000 aside every month in an interest bearing account like a bank money market account or savings bonds if it were possible. For the purpose of this example, lets put the interest rate at 8.5% per annum. You save this amount of money for 10 years.

Monthly savings - R2,000
Interest Rate - 8.5%
Term - 10 years
Total amount saved - R240,000
Interest earned - R138,942
Total - R378,942

As you were busy sleeping, buying stock, baking cookies, driving around to deliver and doing a lot of lousy stuff in between, the monthly R2,000 that you worked for was busy working hard for you. It made R138,942 in interest for you. That is just one way of having money work for you. 

Growth from High Performing Exchange Traded Funds (ETFs)
Another similar example is that of high performing ETFs. I will push it to the one that yields 25% per year. By the way that is not the best one can achieve with ETFs. My son is with the one that yields close to 40% every year since he started.

Monthly investment - R2,000
Interest Rate - 25%
Term - 10 years
Total amount invested - R240,000
Growth - R825,609
Total - R1,065,609

How is this for money working for someone? Your R2,000 per month could only be summed to R240,000 in 10 years. But because it was hard at work every second of the day, it single handedly produced an extra R825,609. That turned you into a Millionaire. Don't you just love how amazing this can turn out to be?

(Almost) Passive Income
Now we look at one having a lump sum to invest in stocks that bear high dividends. One can get thousands of rands in dividends monthly over a medium term period of investing. This is of course after one has selected good quality and high dividend stocks.

Another example is that of a rental property. I like it when an investor buys a bargain property in a high rental demand area and puts it on the market. If you bought right, price wise, you may be killing it in the net rental income. That is what I mean by having money work hard for you.

Not passive at all, is flipping a property. It is a lot of short term work. We actually bought a property in an active property market area 6 months ago. We did clean the property up for about 2 months part time. We are now getting interest from buyers at more than 50% in profit. If we were to push it a bit, even close to 100% in profits is possible. That is another way of making your money work for you. And if you used the homeloan to buy, you may even be making someone else's money work for you.

Reaching Financial Independence
Remember how you start your working life, working harder and harder for your money. You may, if you are fortunate, start investing your earnings early in your life. You may also start a side hustle just because you can. Your investments may be earning you some passive income like dividends. Your passive income may at some point catch up with your salary... it actually does at some point.

At that point you realise that you do not even need to be working for your money because your money is now working for you. That is a definition of financial independence or like some refer to it, financial freedom. It is a stage where you never need to work for money ever again in your life. You may still hold a job because you love to. But whether you do have a job or not, money pours into your account. You may take a year traveling the world or volunteering in the local orphanage, and your passive income will sustain you.

Everyone should be working towards reaching financial independence. Who wants to need to work forever?

Read More

FRUGALITY VERSUS EARNING MORE

A lot of personal finance fans choose between the two paths to financial independence viz. frugality versus earning more income. Those who have been following this blog for some time will remember that I wrote about reaching financial independence and how I am doing it here...  The two methods can be used together.

One of my rental properties: on Frugality versus Earning More

Frugality
Frugality is about using resources sparingly and economically. Frugal people may for instance buy used goods, grow their own food  to save money and generally live at a far lower cost than the income they earn. R500 in the hands of a frugal individual may last a month whilst two days may be too long in the hands of a lavish person.

The frugal hate any kind of waste and usually reuse resources. they embrace low cost and cost-free options like cycling instead of driving, jogging instead of the gym, searching for discounts, etc. This group focuses on cutting costs and expenditure. Many frugal people live on a small fraction of their income.

You will be surprised to know that I am not a frugal person. Just the past week I guzzled on restaurant cafe latte almost daily and ordered lunch from different restaurants everyday. I did this because I was just too busy and preoccupied the whole week. I would never do this everyday but if I have to choose between writing emails to my property manager and preparing the next day's lunch in the evenings, I am inclined to choosing the emails. This is because that email to my property manager is probably going to grow my income or guard against me losing money whilst the lunch may cost me R50 for that day. Before you judge me for being too lavish, we really try to live on a fraction of our income with 50% being the norm.

Earning More
"Passive Income is earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved." that is according to the IRS.

Passive income is usually regular (daily or monthly) once it has been built. Main sources of passive income are rental activity, stock trading and business partnerships. When it comes to making a choice between the two (frugality versus earning more income), I definitely go with higher income. Reasons being that when money is made and invested, it goes on making babies and grandbabies for the rest of one's life. That's where I put 100 percent of my focus. If I have to buy lunch everyday because I am writing for income, so be it. 

Just a few years ago, we fought for our property income to replace one of our salaries and we managed to do that. I doubt if frugality alone would have helped us achieve that. We have tried to grow our dividends to give us a small stream of passive income, which proves to be very tough in South Africa. Our money market account gives us a few cents which, given the inflation rate, is technically a negative growth. But this is still better than an ordinary bank account. My writing earns me more than enough to cover my son's school fees and all school related costs. The excess from that is for me to do whatever I wish like the shopping spree I went on in my recent trip to the UK. The beauty with this is that I love writing and I can do it for the rest of my life. Everyone has their own passion they can practice on a part time basis. I would not have achieved much without extra income.

Frugality has a good role to play, but growing your income is the most effective strategy. However, even that only adds value when the income earned is invested. The aim is to have your money grow to earn you income every day of your life.

Which one would you choose for yourself: frugality versus earning more income?
Remember to ask me any question by clicking here...

Read More

SIDE INCOME

Side income from writing:

Under a heading "Side Income I have a small income from my online writings." How do you get income from writing? I love writing and every penny will help.

 There are a lot of ways that one can make extra income. I wont dwell on them because your question is on writing income. What you are reading right now is my blog and one of the ways I publish my work. This blog doesn't make much for me in terms of income. I do however write on other topics and monetise my work and get some income from it.

All my work is published and sold online. If I had time, I would probably freelance too. I would write for online and offline media like magazines. I don't have the time. Maybe a few articles a month at the most would do.

I must add that my writing side income has gone down since I came back to work. I used to write an article or two most days when I worked from home. I enjoyed it. Writing relaxes me. Strange but very true. Hope you use your own skill and hobby to make money and build your wealth.

Read More

SIDE HUSTLES

I just asked a group of women on facebook about their side hustles. I was so inspired by all these hard working women. Some are in direct marketing building their sales businesses, some are rocking a second job/ future business, one is selling chicken and eggs and one is completing her self catering apartment/ studio. This all inspired the rest of us. Everyone is awakening to the reality that no job is secure, and that diversification of income is necessary.

Side hustles and Outsourcing

My own side hustles story goes:
For more than 4 years I lived in a foreign country, set to build on my side income to be my main income. I had no salary and my goal was to grow my side income to reach the last salary I received from my job. This would enable me to choose whether to go back to work or continue doing what I love doing. The plan was to have a location independent kind of work like freelance writing. For one year I buried myself in writing from morning to morning. I slept for 5 hours max. I got burned out and worried that I wont enjoy the new country I was in if I carried on with the hard work and no leisure. I decided to outsource some of my work (I am a lazy person in general). A company in another country started writing for me together with SA journalism students and a freelance editor worked on the imperfections. I pretty much freed most of my time to do missionary and charity work and talks in conferences, and coffee dates and church activities, and social networking, and leisurely writing only on what I like.

My main side income when I had a job was in real estates, followed by my writing. With me that far I had to hire a property manager to take care of the real estate part of my busy life. I now had outsourced almost all my life. I didn’t even take my son to school, because I felt I needed time to think about ways to grow my side income. Everyday I woke up to think, think and think some more... My thoughts got clearer and clearer every single day. I decided to go back to school for 2 years, which I did on block weeks to do Masters in Real Estate. Though unnecessary but also tying in with the goal of growing my side income.

I renovated my rental properties to increase the rental income...it worked. My writing side hustles started working for me and I re-invested the income where it can work and earn me monthly income... it worked. Four years went by and my extra income reached my final take home salary of 4 years prior. I had to choose whether I go back to the workplace or I continue chilling with my daughter at home. My friends were scared for me, my family was scared for me, I was scared for myself, my husband was a very proud man and pretty much told me to “do whatever you want to do”. I went back to work just to see how I feel about it. I was now more confident to shove in my terms into my new job like reducing the travel. And I realised that I still like the kind of work that I have been doing in the past, quite a bit. I will be honest, the main reason I went back to work is to grow my side income further through investments in order to reach double my current salary. I thought and still think I won't last very long at work but I decided to at least try it. If I enjoy it, I will stick around for another two years.

This is no magic, anyone can do what I am doing. I am humbled by the love and support and the inspiring women who are working hard all around me. I am writing this to inspire the women who are starting on their side hustles to keep on working hard. It's one of the few ways to fast track one's financial independence. All my side income is re-invested to build more income. Most importantly, when I invest money, I never feel deprived of anything because God has already provided me with everything I need. The rest is just unnecessary frills that are great to have. And my lifestyle has enabled me to give to the less fortunate more each year. I am really grateful. I may not be rich but I am very content.

How about you my friend? What side hustles are you busy with?

Read More