Financial Samurai

This is impressive – GREAT JOB!

It is great to earn risk free more than what you pay on your mortgage. I have more in I savings bonds than my mortgage. However, no way am I paying off my mortgage as its at 3.5% but my I bonds are paying 4.7% to 6.1%!

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Financial Samurai Reply:
April 16th, 2012 at 6:06 am

Thanks David. Which country ibonds are these? I might want to get me some of those!

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David M Reply:
April 16th, 2012 at 6:20 am

These are US government I-bonds.

I purchased them in 1999 to 2001 and THEN they came with a 2% to 3.6% guaretee over the inflation rate. However they now pay NOTHING over the inflation rate!

I also purchased these using a credit card and got hundreds of thousands of frequent flier miles! You can no longer use a credit card to purchase US savings bond!

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Financial Samurai Reply:
April 16th, 2012 at 7:50 am

Wow, and with a credit card too! I love America! Except for the government, haha.

Investor Junkie Reply:
April 16th, 2012 at 3:39 pm

I-Bonds are no longer as good of a deal as they once were. The fixed rate and yearly amounts are low.

:-(

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David M Reply:
April 16th, 2012 at 5:35 pm

Definitely no longer as good! Now they equal inflation and nothing more. And the limit is much lower. For a few years I purchased $60,000 worth a year. For many of those $ I got double frequent flier miles from United – can you say Free First Class Trip to Japan!!!!!!

I loved getting frequent flier miles to move money from cash to cash. I also loved the 60 free use of money!

The good old days!!!!

Great job Sam! $6500/month net of taxes is nothing to sneeze at. You could move to the midwest right now and live a relatively comfortable life.

I would say if I had $6,500/month coming in then I would hang it up. I haven’t thought about how much I’d like as that goal is relatively far off and we’re still focused on paying off our debts.

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Financial Samurai Reply:
April 16th, 2012 at 6:06 am

Ah, but $6,500/month is gross. The base case net after tax is only around $4,550 a month. Will keep striving though!

From the post:

“After 30% tax, my base case passive income is around $4,550 a month. The irony is, if I didn’t work for a living, my after tax income would probably be over $5,000 a month due to a lower effective tax rate of 20%.

Another solution is to just move to one of the seven no income tax states upon retirement. Base after tax income will therefore rise to about $5,500/month. California’s 10% income tax is a killer!”

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Steven Reply:
November 27th, 2012 at 9:19 pm

Move to the mid-west and live better? You’ve got to be idding! My wife and I just did that, for 2 years! And the truth, like with most things, is a bit different than what people where we come from in Northern california are led to believe.
Example: Calif has property taxes of about 1.25% of purchase price plus 3% per year; other states (most) are completely different!. Prob 13 in Calif is more of a lifesaver for the middle-class than even many well informed Californians understand.
Example: In Michigan propery taxes are a lot different from Calif. And they impace rental prices too, not merely owner occupied homes. A recently purchaced 300k house in Calif will have a 3,700 dollar prop tax per year. But a 300k house in Ann Arbor has an 8,500 dollar yearly property tax! It’s unbelievable yet the locals in the mdwest do not seem to be aware that taxes in Calif are wayway lower on homes. As a result of this the rental prices are a lot higher in the midwest that one would ever imagine. But what rental owner can charge low rates when his-her overhead is so high. Hence the rental costs are not low, even in the forlorn more rural towns, the rents are still quite surprizing.The idea that home prices in Ann Arbor and other midwest cities that still have jobs are lower than west coast prices is only true when compare to prices in San Francisco proper. A veryvery modest, and quite small, but presentable middle-middle class home in AA goes for 225-245k. The bargains we see on the west coast regarding midwest homes are simply not based in reality. They do exist but are in towns far away from jobs and in towns that are a shell of what they once were. They are simply not fun places in which to live.
Example: the very low 25-75k homes are always, and I mean always in towns that are outside of commuting distance to places with employment. And a commute of 50 mi in the winter on icy 2 lane roads is not smart and its not safe. The winter back there is different from what is ever seen in california and I now live in the part of CA where there is a lot of snow but the winters in the midwest are flat-out frightening.
When one understands that the 350,000 blue collar GM workers of 1990 are now a workforce of 35,000 then you begin to get the picture. (Ford and Chrysler workforce numbers are almost the exact same) And the forlorn towns to which I refer are everpresent and abundant. In fact, Mich may be the 8th most populous state, but their population just dropped below 10million, heck; LA county just rose above 10 million! The empty jobless towns are everywhere! They cover the landscape and the remaining towns with employment have housing prices that are quite comparable to most normal Calif and other west coast places. Big neighborhoods in AA and other towns that still have employment, have homes in the 500-800k range. Their costly neighborhoods are almost as costly as Calif prices. Yes; modest areas of even AnnArbor do have lower prices, but never below 225-245k for small acceptable cuckie cutter tract homes. The towns that do have low home prices are many miles away and are an emotional “downer”. Ideas of retiering to them is a fantacy held only by those who have never been there. The “cost of living” really isnt much different, except for home prices. And once taxes are brought into the mix, and 10 or 15 years of paying those taxes are included as well, then all things (except milk prices for some reason) are all pretty much the same.
Seriously, from one end of the good old USA to the other, the cost of living really isnt all that much different. Comparing San Fran home prices to anywhere else is always misleading, including areas of Calif just a few miles away from Sf or Silicon Valley. And in towns in the midwest where the home prices really are 25-75k for a big old Victorian, well it doesn’t take long to understand why. No one who has a choice, would live in such places. My wife and I traveled from Mich to Kentucky, to Missouri, to Minn (try finding a cheap house in Minn) to Chicago (cheap Chicago houses yeah right!, even Ohio and Penn. The story is the same everywhere. Sf is way overpriced, Silicon Valley is overpriced as well, but stories of those cheap midwest eal estate “gems” are totally misleading.
We were a bit shocked when this reality came to light. We expected different. Most unexpected were-are the 3x higher property taxes. It’s such a relief to get back to Calif and the safety of prop 13.

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Financial Samurai Reply:
November 28th, 2012 at 5:56 am

Prop 13 is definitely great for those who bought more than 10-25 years ago, but for the rest of us, it’s taking away revenue from the state. I’ve had to appeal my prop tax lower every single year otherwise it would just go up 2-3% like clockwork.

I didn’t realize prop tax is so high in the Midwest. I just like more moderate weather and diversity. It’s SF or Honolulu or bust for me!

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Our income streams include just our jobs with a sprinkle of my blog income (ha).

Our target would be around $5,500 after tax income. Right now we’re at around $4,000-$4,300. $5,500 is ideal mainly so that we could pay down our debt faster.

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Financial Samurai Reply:
April 16th, 2012 at 7:50 am

That’s great you’ve got $4,000-$4,300 in after tax income (passive?) a month! How long did it take you guys, and what are the passive-to-relatively-passive income streams you guys invested in?

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Michelle Reply:
April 16th, 2012 at 7:56 am

Oops I should’ve made that clearer. I meant to say that we have hardly no passive income.

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Financial Samurai Reply:
April 16th, 2012 at 8:34 am

Ah, gotcha. Do you plan to build passive income? Or not necessary b/c you enjoy your jobs that you could see yourselves working for a while?

* need to start new thread

Great post, Sam, and excellent work on the passive income front. I admit I’m a bit green, haha!
I agree with you on multiple income streams, and I am actually impressed you have such a high risk-free rate of return, and such low mortgage rates. How did you manage to swing those?

I have an upcoming post titled “Getting Screwed Out of Your Hard-Earned Capital: How CDs and GICs Are Rip-Offs for Long-term Investing”, but this is more applicable to current rates which appear to be 2% or less.

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Financial Samurai Reply:
April 16th, 2012 at 7:53 am

Pretty easy actually. I took a stance 2, 3, 4 years ago that rates were going to come down. Hence, I locked in the longest term CD durations I can find eg 7-year CDs at 4.5%.

Now that rates have come down, I have then aggressively refinanced all my property debt. As a result, you have a POSITIVE CARRY on your debt + a surge in rental income.

Let me ask you this: Would you rather make 2% or lose 10% of your principal?

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Invest It Wisely Reply:
April 16th, 2012 at 8:17 am

If you can lock in mortgage rates that low, then why not. I had a post about that today, actually, but the rates here are for 5 years, not 15-30 years. 3% or less on a 15-30 year mortgage? It’s a done deal, haha.

The only thing is, what’s going to happen to the banks if/when rates go up and lots of people are holding cheap mortgages. Isn’t that what the crisis in the early 80s was about?

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Financial Samurai Reply:
April 16th, 2012 at 8:31 am

Didn’t know you are a homeowner Kevin! What did you refinance to?

When rates go up, asset prices go up! I have a 1000 word post upcoming that will explain.

Invest It Wisely Reply:
April 16th, 2012 at 8:44 am

We took a variable rate at 2.30% for 5 years at the time. Now we have the choice to potentially go to 2.99% for the remaining 4 years, but depends on cancellation costs, too, as not offered by the same bank.

Come check out the post. :)

$4000 in monthly passive income is basically financial freedom in my case especially if there’s no mortgage to pay. I guess to each his magic number :)

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Financial Samurai Reply:
April 16th, 2012 at 7:53 am

$4,000 a month in after tax passive income sounds good to me! That’s in my range of $3,000-$15,000.

Where are you at now?

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“That said, I think there’s a mini-bubble in dividend investing, so I’m not jumping head first just yet.”

You don’t say? ;) FCF yields with the dividend payers are ridiculously low – no thanks!

As far as income streams, real estate seems like the best bet pending that you have some kind of “breathing room” in your personal balance sheet to make the commitment. P2P lending seems to be a hot, non-correlated asset class, too. I haven’t spent much time digging into it as I live in one of the non-P2P states. If you like cash flow (either free cash flows, or return of principal) the 36-month amortization of P2P loans is pretty awesome, and probably better than a CD all things considered.

Cash flow definitely isn’t my focus right now. Honestly, I think there’s way too many people interested in it at the current time. Dividend-paying stocks, for example, are on literally EVERYONE’S radar, which means people are overpaying for yields, irrespective of the internal return. Those that take some kind of commitment – real estate and P2P – both offer much better returns, and in the case of real estate, a better IRR if there’s any appreciation.

BTW, living it up on a resort is completely possible, especially if you work there as a tennis coach. I know a college student who started and sold a business in highschool/freshman year to sell out, take a year off from school and live the high-life for a year on a resort, with all expenses paid plus a small salary for part-time work on the resort. He wasn’t in it for the long-haul, but if you’re in a different position, it seems like a hell of a way to retire in style.

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Financial Samurai Reply:
April 16th, 2012 at 7:55 am

I should look into P2P, but I want to go LARGE, like $100,000 or something. A 10% return is great, but who cares if you just have $10,000 or $20,000 in it? It doesn’t do much for me, or for most people I imagine.

I’d like to partner up with a P2P company like prosper, where I can be their spokesperson or something, give them a large chunk of change, and have them actively manage the account so they give me as best a chance as possible not to blow my returns up.

You need to build the NUT to generate cashflow. Just get cracking.

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JT Reply:
April 17th, 2012 at 9:16 am

I agree with you on going big. I think that’s the only way to make it worth the time and diversification. Apparently hedge funds are now making up 40% of LC’s loan issuance, so there’s definitely some big money taking a look at P2P right now for solid cash flow.

I still think there’s some merit to using margin to displace capital in a stock portfolio and using the excess capital to fund a LC portfolio. If you have $500k in dividend stocks, you could theoretically pull out $100k, leverage with margin at 2-3% to get back to $500k, and put the $100k into LC. Cost of capital would be tiny compared to returns in P2P, and your downside risk would be neutered, as $100k leverage against $400k in account balance means it would take a 80% drop in equities to wipe you out, which is virtually impossible. It’s certainly not a traditional method for financing, but it works.

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Peter Renton Reply:
April 17th, 2012 at 12:51 pm

Going large (as large as you can reasonably afford in a diversified portfolio) with p2p lending is the way to go. I currently have around $150K invested, between Lending Club and Prosper), and intend to have that up to $200K by the end of the year with a goal of $2,000 in passive income a month in 2013. I am on target for that.

It is not without risk but I think the risk/reward equation is better with p2p lending than any other fixed income investment.

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Financial Samurai Reply:
April 17th, 2012 at 1:15 pm

Gotcha. You mentioned there is a concierge type service w/ LC right? Can I get an account manager who can monitor and pick and choose for me if I give $100K or $200K? If so, I will probably do it, as I’m trying to figure out where best to put my new money other than in a savings account.

Daniel Reply:
April 17th, 2012 at 10:44 pm

You should check this strategy for p2p lending
http://www.bravenewlife.com/08/lending-club-investment-strategy/

Peter Renton Reply:
April 17th, 2012 at 11:14 pm

Yes. Lending Club offers a PRIME service for a minimum of $25K. You give them a little direction and then they manage the account for you, investing in new loans as soon as the cash builds up in your account. It is a great way to benefit from p2p lending without the hassle of managing your investment. But this management does come at a price. You can read my Lending Club PRIME review here:
http://www.sociallending.net/reviews/lending-club-prime-review/

Financial Samurai Reply:
April 17th, 2012 at 11:24 pm

Good review. Thx. That Dan B guy seems to be really down on P2P lending.. did he say what his “NAR” was?

A 0.8% fee does sound like a lot… but not really if I can get 10% on my money.

If you had $250,000 in cash lying around and did not need it b/c you have multiple sources of income, how much of that $250,000 would you invest in a LC Prime account?

Investor Junkie Reply:
April 18th, 2012 at 1:19 pm

Why not manage it yourself?

Additional income streams? What are those? I don’t foresee anything in my near future resembling additional income beyond my job.

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Financial Samurai Reply:
April 16th, 2012 at 8:06 am

If you don’t need em, even better! I need the various income streams in order to do other things, other than my job when it’s time to go.

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I too believe in multiple income streams, the more the better. My goal when I retire is to have $5-6K after tax income per month. I will have that through Social Security and a pension. My retirement savings will be gravy on top of it. Since I will have no debt and relatively low real estate taxes, my wife and I will live quite well. My savings and other income augments that. Since I have no idea how long we will live, I am planning on a modest life. A 3% withdrawal rate seems to make sense, although I will be 70 years old when I retire.

I am more concerned about physical and mental activity that will keep me healthy. This is one of the reasons, I am starting to do things now to make sure I will have something to do.

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Financial Samurai Reply:
April 16th, 2012 at 9:56 am

You are very fortunate to have a pension! To be able to receive, 50%, 60%, 70%, 80% of your last year’s income for LIFE is incredible!

I’ve totally disregarded Social Security. But, that would be a nice $2,000+/month gross income boost if it comes.

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krantcents Reply:
April 18th, 2012 at 4:17 pm

Don’t forget the medical (for life) and the COLA too! It is not really as sweet as it seems. I wish I had that when I earned much more money. Oh well, Life is not perfect!

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Financial Samurai Reply:
April 18th, 2012 at 5:56 pm

But u have it now! Isn’t that all that matters? How long did you have to work in the public sector or as a teacher to get these benies?

I love this insight into your income plans Sam. Thanks for sharing so much detail. It is obvious you put a lot of hard work into building all of this, and it is an inspiration for me to focus more on income generating investments.

Now that I am debt free, other than my mortgage, I am starting to put a lot more of my monthly income into investments. I am on track to max out my Roth for the first time ever while I put more into my non-retirement portfolio as well and take full advantage of my 401(k) matching plus a few percent.

Looking at your income from outside of your primary job is a good reminder of what we can do.

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Financial Samurai Reply:
April 16th, 2012 at 9:58 am

No problem Eric. It was exhausting to write, but I’m glad I did as I forgot about my private real estate and private equity holdings! They take so long to mature, that one just forgets.

I’m against a ROTH if you haven’t maxed out your 401K yet. Please read this post. I think it will change your mind. http://www.financialsamurai.com/2012/03/29/disadvantages-of-the-roth-ira-not-all-is-what-it-seems/

Good luck w/ building that stream!

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Eric Reply:
April 16th, 2012 at 2:31 pm

Interesting stuff on the Roth post. Now you are making me think twice. I put money into the 401(k) first, then hit the Roth, then do other investments and savings. I am a long way off from maxing out the work retirement plan.

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Financial Samurai Reply:
April 16th, 2012 at 2:45 pm

May I ask why you funded a ROTH before maxing out your 401k? Tx

Yeah! Great post! We’re not nearly as diversified…In fact pretty much all of our secondary income comes from real estate, and our entire long-term strategy revolves around it. We have significant amounts of cash sunk into some private equity investments from years past, and they’re in about the same boat as you describe your private equity. If that pays off (we’d even be ecstatic with it paying BACK) it would be a huge boost. I’ll be excited when I see our “passive” income approaching what our W-2 income was a few years ago when we were starting out. That will likely take at least 3-5 more years.

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Financial Samurai Reply:
April 16th, 2012 at 9:58 am

That would be sweet to have passive income MATCH W-2 income! I know I won’t get there for another 10 years probably, but it’s fun to reach.

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Jonathan Reply:
April 16th, 2012 at 10:07 am

One of the disheartening things is that as my W-2 income grows (our combined W-2 income is about 70% higher than it was 5 years ago) it becomes a harder and harder target to reach, AND it makes it harder and harder to give up! By the time we get to $80k in passive income our W-2 income will probably be double that or beyond. Oh well… a few more years of strong saving/investing at those income levels and the passive should really take off!

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Thank you Sam for highlighting so much detail in diversity. I understand why you want to keep the active and bonus income portions private since each person is in a different occupation with different skills.

Seems very difficult to generate $10,000 a month in after tax passive income nowadays!

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Financial Samurai Reply:
April 16th, 2012 at 9:59 am

No problem. Yes, it’s very difficult. I’m actually kind of disappointed that after all these years, I’m still just 1/3rd of the way to my upper limit goal. I won’t stop trying though!

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wow… this is beyond the point of income diversification ;-).

Is there any form of income you don’t have at the moment? I mean, all you are missing is royalties on a music single or a book, right?

With an income portfolio as diversified, the only thing left for you is to enjoy life. Congrats on such accomplishment.

How do you keep up with everything? I mean: how do you answer a tenant’s request while you have received 100 emails from your online business, 100 emails from your day job, coordinate a business meeting with tennis lessons… between 2 trades on the market? Do you have assistant or you are simply working 15 hours a day? I know that a big part is not really “working” since you have fun doing it, but still. It seems a lot for a single human being. What’s your secret?

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Financial Samurai Reply:
April 16th, 2012 at 9:20 am

It’s the same “secret” I carry with me when I battle my opponents on the tennis courts. I tell myself in between points and during change overs, “Focus.”, “Try harder!”, “No excuses!”, “Never give up until the very end.”. Sometimes I win, sometimes I lose. At least I know it wasn’t due to a lack of effort.

I don’t have product income. That’s something I want to build, but am not in a hurry.

I find tenants to handle the issues themselves by giving them a list of trusted handymen. I give them full authority to charge up to $200 to fix something, and email me if over that amount. More efficient for them and me. Responding to emails is easy. Also, I don’t have 3 kids like you, so have more time.

Today I woke up at 4:45am. Worked for 4 hours straight, and have a 10:15am tee-time :)

BTW, do you still object to the “How To Retire Early” post?

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Your passive income is very impressive Sam. It seems like now is the time to pull the trigger and enjoy your adventure. You can buy a cheap place in Nevada and call it your residence once you leave your job. The tax saving alone will give you a big boost. Is that right?
I like the fact that you didn’t include the earning from your 17 years saving (401k and IRA?) in your passive income. Many bloggers add this to their passive income stream and I think it inflate the income a bit since you don’t want to touch those funds.
All I have to add is that you’d better work on your prenup. ;)

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Financial Samurai Reply:
April 16th, 2012 at 10:01 am

I feel too young though. Just sees wrong to pull the ripchord so soon. But, by 40, like you, I think that is long enough eg 18 years of work!

Yeah, I don’t include my 401K (what’s an IRA?!) at all. That’s not passive income!

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retirebyforty Reply:
April 16th, 2012 at 2:08 pm

It sounds like you have a bunch of projects lined up already. You’re not going to sit on the beach and relax after you leave your day job right? Well, not for long anyway.

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Financial Samurai Reply:
April 16th, 2012 at 2:20 pm

Going to the beach this Thursday for a week so don’t be too sure!! ;)

I think this is the first time I’ve seen your “setup” laid out in its entirety. You should write a book “How I Can Retire Now, and Why I Won’t.”

I think the first passive stream I’d pursue would be a rental property. My feelings of reaching debt freedom will soon be replaced by feelings of having nothing saved.

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Financial Samurai Reply:
April 16th, 2012 at 10:02 am

Donno about the title, as it is kinda circular, but maybe! I have another book title, that I plan to test out in a post.

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Great work committing to saving over that many years. You’re hard work has definitely paid off. For someone just starting out, I’d say it’s inspirational. I am just now starting to have some cash to invest to build up some passive income, so I am asking myself where to start. I am going to build up some cash savings to invest in real estate, but I also want to generate more income since it would take me less time to save up for the rental property.

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Financial Samurai Reply:
April 17th, 2012 at 8:27 am

Corey, you’re WAY AHEAD of me on side income streams man! When I was your age, I had nowhere near $3K or whatever you mention you earn from outside your day job! All I had was my day job income. Keep it up!

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20's Finances Reply:
April 17th, 2012 at 10:42 am

That’s funny because I always feel behind. ;) Maybe that’s why I am so motivated. I’m not giving up anytime soon. I’d like to get to 4k after tax from my side income(s).

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Financial Samurai Reply:
April 17th, 2012 at 10:47 am

That would be sweet!

This is one of the main reasons why I’m so bullish on the economic recovery. I encounter people everyday on the internet who make bank, and you would never know. The internet has given opportunity to so many who want to take it.

Hi Sam, You raised some thought provoking questions while performing a detailed self analysis. I admit, I’m a bit dizzy after reading the article and I am looking forward to watching your situation unfold. Sounds like you are at a bit of cross roads. And ditto to the government waste and prejudice.. I’m totally in agreement there!

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Financial Samurai Reply:
April 16th, 2012 at 11:29 am

Barb, which parts are you dizzy about? Maybe I can help clarify!

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Holy moly, Sam! I think you are all set. You definitely know where you are going, where you want to be and how you are going to get there. :) Just don’t get fat! Also, one day your spouse would like to do something of her own and quit her job. :) But I am sure you will be prepeared for it.

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Financial Samurai Reply:
April 16th, 2012 at 11:45 am

I want to big a Big Blogga! Don’t stop me from reaching my dreams!

I’m not all set as I still have a gut busting $10,000/month more in after tax passive income to strive for!

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This is impressive! I do not have any passive income right now, but I absolutely love my job so I’m not as concerned yet.

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Financial Samurai Reply:
April 16th, 2012 at 11:46 am

So long as you love your job, you are all set!

I do recommend you start now because loving one’s just fades over time for most. How long have you been working?

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Frugal Portland Reply:
April 16th, 2012 at 11:48 am

working? decades. here? 3 years.

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Financial Samurai Reply:
April 16th, 2012 at 12:32 pm

Nice. Let us know how you feel after 10 more years!

Your post is proof that with patience and discipline, you can generate a great passive income. We don’t have any passive income yet, but I plan to write articles and resubmit to multiple sources by retaining my rights. That will be my passive income for now. We are making about $3,500 a month,which is tight with 3 kids. I would like to get it up to $6,000 in active income and then add passive income to it.

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Financial Samurai Reply:
April 16th, 2012 at 11:47 am

Spounds like a great goal to me Melissa!

It’s crazy what 10+ years of consistent savings and compounding returns can do. Anybody can do it!

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I am so glad I randomly ended up finding this site (from a random Reddit Post). I was just thinking about this exact topic the past few weeks. I am very early on in the process, luckily I have people like you, ERE, and MMM to set really solid examples of what to do.

My big struggle is where to start! It seems like once you get the ball rolling you benefit from a snowball effect, but the beginning is always tough.

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Financial Samurai Reply:
April 17th, 2012 at 8:29 am

Good to hear from you Andre. Didn’t know this post went on Reddit. I’ll have to check it out.

I would start on anything you feel you have a strong grasp of first. The point is to just start and never stop!

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Andre (SF) Nader Reply:
April 17th, 2012 at 9:18 am

I back tracked my steps and it turns out that I ended up finding you through MMM’s guest post originally. At the end of the day I am just glad to find your site.

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Financial Samurai Reply:
April 17th, 2012 at 9:41 am

No problem Andrew. MMM and I have similar philosophies about early retirement, but different ways of approaching it.

I think retiring at 30 is way too early b/c it short-circuits one’s potential in one’s career or business. After a couple decades of schooling, we should put our knowledge to the test.

You should read The Dark Side Of Early Retirement. http://www.financialsamurai.com/2010/04/30/the-dark-side-of-early-retirement-risks-dangers/

“I’m not worried about interest rates getting crushed during a reset, because if they do, that simply means there is little inflation.”

A very optimistic statement. You assume the FED funds rate equals CD rate. While they trend together, this assume no QEs or operation twists. You know as well as I do the FED wants inflation no matter what.

If you are rolling over your existing 5 year CDs now, new CDs are below the trailing 12 month inflation rate. So it’s pretty much assumed you are going to lose money in real terms. In addition, any CD right now is below the trailing 30 year inflation rate.

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Financial Samurai Reply:
April 17th, 2012 at 8:32 am

The majority won’t be rolling over in another 5 years our so. We’ll cross that bridge when we come to it. For now, I will happily collect the 3.75%-4% interest return on this portion of my wealth.

I HOPE for more inflation b/c asset prices will therefore inflate. In my view, you can only lose if you lose. I’d take a 0.2% increase over a 10% loss anyday.

Do you have a post highlighting your passive income sources and strategy? I’m assuming given you are older, you have good insights you can share, and probably much more income! What are you generating now and what are your favorite investment sources?

thx

[Reply]

Investor Junkie Reply:
April 17th, 2012 at 2:09 pm

Sounds like you don’t have a ladder but a barbell (dumbbell) with your CDs allocation, which is good.

The highest rate of return is Lending Club out of any fixed income investments currently (that is truly passive and does not include business income). Our combined estimated taxable rate of return is 4.90%. This does not include MLPs, or dividend stocks I own in taxable accounts, which has been much higher for the past three years.

Since I am now public I will not reveal specifics of our portfolio. I will say our taxable passive income is less than yours currently, but it’s also on purpose.

Unlike like your setup most of our net worth (say 60% I don’t have an exact #) are in tax differed accounts. Our strategy is similar to yours though. Diversified in various passive investments like mentioned in your post.

In your case it makes more sense to put in taxable, since you are single and don’t need much overhead to live financially free and at a much younger age.

Our financially free nut is much higher than yours, mostly because of raising three children and wanting paying for their education.

So while it’s possible we could retire younger than 60 (prob 50 based upon my calcs) while raising a family, as mentioned I don’t ever formally to retire. So I’m focusing on maximizing our income over our lifetime. This includes reducing the tax burden as part of this strategy. That doesn’t mean we aren’t investing in taxable accounts. This year especially I am adding more to our taxable accounts, while the rates are lower for earned income.

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Financial Samurai Reply:
April 17th, 2012 at 2:59 pm

I’m definitely looking into P2P and muni bonds. I was afraid like Meredith Whiney, that munis would blow up.. and therefore didn’t invest. I think fixed income is kind of risky now, so I will bide my time. P2P is very intriguing, and if I can get an account manager to look after my funds, I will inject a good chunk of change.

I can imagine the costs of three children and education down the road. Do you think $15,000/month after tax is enough then? That is what I’m baking in for a family of 4. thx

Investor Junkie Reply:
April 17th, 2012 at 2:12 pm

What I will suggest is trying to maximize your taxable income investments to reduce tax further.

Ie munis, MLPs, and things like I bonds.

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Investor Junkie Reply:
April 17th, 2012 at 3:57 pm

The problem I’m having this year is most investments IMHO are fully valued. So where to put new money is the $1 mil question.

http://investorjunkie.com/12216/press-luck-dividend-stocks-fixed-income/

MLPs were once good deals and I currently think they are just ok, just like most investments.

I my just keep some of our new money in cash.

Let me add I would invest in I-Bonds before CDs first. Granted the amount isn’t high though, so it’s a slow in process.

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Wow awesome monster post Sam! I need to do a better job diversifying my income streams. I have CDs but man the rates suck on half of them. It’s still nice to see the totals climbing up little by little. I don’t have any dividend income at the moment and probably won’t for a while. I have too much going on to properly manage a portfolio and I don’t have the stomach to deal with market volatility. I do have my 401k balanced pretty well though so I get my market exposure that way.

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Financial Samurai Reply:
April 18th, 2012 at 6:31 am

Thanks Sydney. CD rates do suck now, and I can’t will myself to put in anymore with just a 2% return on a 7 year horizon. P2P lending looks enticing now!

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That’s just awesome, Sam! I love the diversity in your passive income streams as well. Thanks for sharing the details with us!

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Financial Samurai Reply:
April 18th, 2012 at 6:32 am

No prob Julie. Now I will have to try and raise my blog’s standards to catch up to yours with a PR5! Will be a fun goal to have.

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You’re certainly in a solid position for long term success – good job!
We currently have one rental property in addition to a basement apartment, and next year we plan to purchase a 3rd property. Some day we’d love to purchase a vacation rental – it’s on the bucket list!

That’s amazing that you’re saving upwards of 75% of your income! We’re currently saving about 50% – but can’t manage to save more than that!

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Financial Samurai Reply:
April 16th, 2012 at 7:09 pm

Sounds like you two are well on your way too! Saving 50% is just every other paycheck. Then I save my year end bonus, so often times, that comes out to 75% after tax.

I dot feel crimped, and want to try and spend more!

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I’m glad you stated the following: “I can promise you that if you do all these things, in 10-15 years, you’ll be set for life.” The problem with many people is they want it now! This plan takes discipline and time, that’s it. Now, I think it will tough for a lot of people to save 55% of their income especially if they have kids. But, I think 30-40% of there net take home pay is doable with discipline and keep the housing expenses low (primary residence), while avoiding the new car trap.

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Financial Samurai Reply:
April 16th, 2012 at 7:07 pm

I know a lot of people who work for 10 years and then have kids at 32-35, hence hopefully they can use that time to save and invest accordingly.

Wanting things now with no money is a sure fire way to get into mad debt and blow oneself up!

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EPIC post Sam!! Really, probably the single best post I ever read. I bookmarked it and will be referring to it regularly.

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Financial Samurai Reply:
April 17th, 2012 at 12:38 am

Glad you enjoyed it! It took a while to write, but it was very helpful and introspective for me. Hopefully it helps highlight some various potentials we all have.

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Sam,

You have done an outstanding job building up streams of diversified passive income.

Do you have any cash parked in meager interest bearing savings / checking accounts or do you put things into CD’s as soon as you can? I guess since you have a ladder going there are always chunks that are maturing and bringing new cash back to you.

-Mike

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Financial Samurai Reply:
April 17th, 2012 at 12:37 am

Mike,

I do have a chunk of change that just hit my bank account a couple weeks ago where I’m wondering what the hell to do with it. I don’t want to put it in a 7 year CD at 2%. The best is to probably use it to buy some more rental properties. But, rental properties compared to online income is more cumbersome, and I want to simplify. I’ve really got to think about how to use the funds.

BTW, you can always withdraw penalty free all your CD interest income whenever you want.

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Great tips on pretending your work income doesn’t exist and still try to maximize the passive income streams. That is exactly what I do and I try to make the most of it!

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Financial Samurai Reply:
April 17th, 2012 at 8:34 am

It’s easy to get complacent living in America, and especially California. Weather is good, as are the government benefits. Must fight the temptation!

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Great post Sam, well done.

What are you headed into next? I bet you could grab a few more properties – maybe not in the Real Bay Area, but on the periphery you can find some 100x rule obeying places. Disco Bay and that area had some interesting stuff when I was sniffing around.

Podcast and a book as well? I’ll tell you, this podcasting stuff is fun… you’ll enjoy it!

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Financial Samurai Reply:
April 17th, 2012 at 7:26 am

PK, what is the podcast software/plug-in that can allow a reader to just press play/pause right on the post instead of clicking a link to then open the podcast?

I think I’m going to be in SF for several more years as this is where the action is for the online space. Afterward, just rotate between my favorite places in the world!

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PK Reply:
April 17th, 2012 at 10:02 pm

Sam, I acrtually don’t know on this one. You’d have to ask Joe.

I know he’s using LibSyn to track subscribers and listeners (and we’re all watching intently). Maybe it’s an app offered through them?

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I am so impressed that you can keep all these (real and potential) moving parts straight. My mind starts spinning when I think of all the options, but I know that it’s not enough to just keep working hard on all my different projects and save as much as possible – I need more of a blueprint towards a higher net worth. I’m thinking I’d be a great candidate for your online consulting service…let me know if you’re looking for a beta tester! :)

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Financial Samurai Reply:
April 17th, 2012 at 7:27 am

Thanks Anna. Once you put it down on paper, it’s easy to keep straight because you no longer have to keep it in your head!

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I’m going with Rich Hot Wife. You’re on to my entire strategy.

I don’t like planning on streams of income that I physically might have to give up for physical reasons. Although tennis lessons are a small part of the plan (ubersmall, actually….), I would have fun with them, not count on them.

It looks like you had fun writing this out. It’s a serious, but seriously flexible plan that leaves plenty of room for fun.

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Financial Samurai Reply:
April 17th, 2012 at 1:31 pm

Nice! Funny, after all the comments so far, you are the only one to mention “rich hot wife”.

It was fun, but a little arduous to put this post together. I had to dig deep to figure out what is out there, and I just remembered there’s another income stream that could be a bonus, which is the buying and selling of watches and collectibles. I used to do that often.

I look forward to reading your passive income report!

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Another good post Sam! Seems so well thought out and planned. I am looking to make about $5k-15k after taxes as far as passive income goes. Still a long way to go though but I really don’t see me stopping my day job. Maybe I would cut the hours in half and only work about 20 hours per week. Need something to do and most of my friends do really have that kind of money so who am I going to hang out with.

Right now I am working on the income from investment properties and pushing the online income. I want to have money coming in from all different sources. Bora Bora does sound nice. I tried to get my wife to consider moving there but its just too far for her.

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Financial Samurai Reply:
April 17th, 2012 at 1:13 pm

Good stuff Thomas! What is it you do that has such a larger fluctuation in active income?

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Thomas - Ways to Invest Money Reply:
April 18th, 2012 at 1:05 pm

I think I wrote it wrong Sam. I would like to make 5-15k in income after taxes. The reason for the amount is at one point I am ok with taking care of just my family. Everything above that income level would be to help other family members and to do things just to have fun.

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Cool. I get the $3,000 per month amount, but the $15,000 per month is mind boggling to me! What would you do with all that money?! And why is your range so big?

Of course, I’m assuming you would have a paid off house, etc. when retiring. We live LARGE (I mean, I can’t imagine spending more unless I started thrashing the Earth with all my consumption) on $2,000 per month for a family of 3! It’s interesting though that many people feel this isn’t possible. Of course, with the extra cash, I would probably end up donating most of it…

Also, I’m curious why you wouldn’t want to do it now? It’s not really that big a deal… you quit your job, see how things go, learn about yourself, maybe travel for a bit, and then work on your projects and your goals. Figure stuff out. The earlier the better, in my opinion, unless you feel you need the extra money for some reason. Quitting my job was the best thing I ever did – it’s really quite amazing the things that have happened since then: the opportunities, the travel, connecting with family, raising my child, etc. I wouldn’t want to wait for that. :)

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Financial Samurai Reply:
April 17th, 2012 at 1:12 pm

A lot of it is for fun. Challenging myself is fun! It’s the reason why I went to college and got my MBA. To test my abilities and see what I can do on my own and in the corporate world.

I went on a 2 week Mediterranean cruise with my best friend last fall and it was amazing, for example. The travel, the food, the spas, the sightseeing, and the accommodations. That trip for two was about $10,000. We plan to go cruising for a a month a year, so that will cost about $15,000-$20,000. It’s just such a great time, unfortunately it costs a lot! Have you guys gone on a cruise before? If not, definitely try it.

I’d like to use the extra money to help friends and my parents as well. If I only made $3,000 a month, theoretically, I can only donate $3,000 a month. But that’s OK, as donating one’s time is also very valuable. With the type of income I’m shooting for, it moves beyond self, and towards helping others more. It’s very motivating.

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Mrs. Money Mustache Reply:
April 18th, 2012 at 11:20 am

Thanks for the reply, FS! I’m going to be devil’s advocate here… hope you don’t
mind.

Challenging yourself is fun, but your real challenge begins when you lose the
security of your full time job and have to find other ways to occupy your time.
That’s when your entrepreneurial spirit will really kick in! :)

Travel: I suppose the WAY we travel is where we differ. I love traveling and
have been to many parts of the world, but I travel differently. I like to see a
place for real (and for a long time) and how the locals might experience it.
I like to camp and climb mountains. I spent $8,000 CAD traveling for 3 months
in Australia and New Zealand, for example (including all flights). Cheaper than
your Med. cruise, but much longer.

I have been on a cruise. I hated it. So did MMM. It’s just not my thing. I am
not a fan of the spas either.

If you look at our Travel budget in our expenses post, you’ll see we spent just
over $5,000 on travel in 2011. We even broke it down by trip. We spent a month
and a half in 2010/11 traveling along the Gulf coast. It was incredible and we
saw many amazing things, but it didn’t cost a lot. I even went on a fancy girls
trip to Vegas and MMM went on his annual snowboarding trip to Tahoe.

Anyway, different strokes… when you’re used to luxury, maybe it’s hard to change
your habits.

Now, with the donations, I am on board with that. We donate a lot of our time
to our son’s school and also gave a large donation to the school this year. My
Real Estate business also donates 20% of all my commissions to non-profit
organizations. We also help our our families and MMM donates tons of his time
helping family members with constructions projects, etc.

Anyway, my point is… you can still do all that for $24K per year. :)

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Financial Samurai Reply:
April 18th, 2012 at 1:33 pm

Oooh, I love the comparison game!

I’ve lived in 7 countries for 6 months to 20 years at a time. Does that count as seeing a place “for real/ a really long time”? In that time period, I’ve also picked up speaking 3 languages. How many different countries have you lived in and how many languages do you speak?

I’ve also visited 50 other countries in the world for 1-2 weeks at a time.

I think it’s great you are a stay at home mom and there’s no need to justify it as it is a precious job that takes a lot of time.

We have different aspirations at the end of the day. I don’t want to say how much I give, but it is more than both of your tearly after tax incomes and I want to give more. I can’t do that if I stay at this level as I’m driven more beyond my family.

Mrs. Money Mustache Reply:
April 18th, 2012 at 7:52 pm

Hmmm… sorry if I offended you. I don’t believe any of my comments indicate that I look down on people who like to work. This post was about financial freedom and potentially retiring early. The main reason I even posted here was to make a point that having a less expensive monthly cost in retirement is possible. I wanted to make this point for readers that make less money because if I read the post above and made $60K per year, I’d find it kind of discouraging.

It seems to me that Sam is enjoying the dialogue, as am I, and I think it was respectful both ways.

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Can you do a blog post on the Private Equity piece. How to find such opportunities and what are the metrics to evaluate investments.

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Financial Samurai Reply:
April 18th, 2012 at 6:33 am

Maybe I’ll try and weave something around the subject. I have a post on accredited investors.

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John Reply:
December 28th, 2012 at 1:49 pm

Sam, did you ever publish this post? If not it would be good to ring in the new year :-)

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Financial Samurai Reply:
December 28th, 2012 at 5:23 pm

I did not, but spend some time reading some other posts I’ve written and subscribe to keep in touch! Cheers

I wish I can have as many income streams as you mentioned. Right now, we are still building up our savings and our passive investment so far is a small stocks portfolio. I am looking into investing on bonds and dividends by the end of this year. We are also on our road to purchasing our second home so that we will have this house rented out as another source of income. As long as my husband and I keep our full-time jobs and save our earnings from our other investments, we are confident that we will increase our income as well as our savings.

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Financial Samurai Reply:
April 18th, 2012 at 6:34 am

A second home to live in, and then rent out your first has worked well for me, and will work well for you if you can carefully calculate the numbers.

Did Barbara hire a VA?

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Wow very inspirational as all of your income sources are diversified like a portfolio. However, I thought I read one time you weren’t going to share your income. Now I feel I am in the know.

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Financial Samurai Reply:
April 18th, 2012 at 6:36 am

I decided to highlight the passive income sources as relevance to PF that anybody can achieve. The online income is not relevant to this blog as it’s not a blog about blogging. My day job income will always remain my own as it’s not relevant to a lot of people either since there are so many fields of work.

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Sam, glad I found your site, it’s very inspiring.

B/c of this post I did a analysis of my own passive income sources and although I knew I was making some I was really shocked to find that I’m making a little over 1K per month.

Currently I have 3 sources of passive income :

1) interest on saving accounts 280 USD / month. I have Euro and USD in several 6 month saving deposits ranging from 2.75% (for USD) to 4% (for EUR).

2) dividends: 380 USD

3) online business (we have a small e-commerce site selling Kindle accessories in my country Romania): 400 USD.

4) I also invested in a private business (a street food shack in exchange of eating a few meals / month for free :))

Total is 1040 USD / month and this is net after taxes (we pay 16% flat tax on any income here in Romania) + a few free meals.

My target is to have 2000 USD / month in about a year. I’m very lucky that I have a job which pays very well and I can up to save 75 – 80 % of what I make so that will be responsible for the increase and also looking for other stuff to sell online and create new e-commerce sites.

I’m also watching the real estate market to buy an apartment or a studio to rent it but at the moment the ROI of such investment is around 4 to 5 % which is close to what I get from my bank.

Now I’m reading your entire site which is a very good read. Thanks for taking the time to write!

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Financial Samurai Reply:
April 18th, 2012 at 9:02 am

Daniel, always great to have a new reader.

Congrats on realizing more passive income than you thought! Furthermore,
I’m assuming US$1,000 in Romania a month goes a lot farther than $1,000 in the US!

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That is an awesome passive income stream sam. Right now outside of my day job, the only income I’ve got is a bit of online income, which i’m hoping to increase as time goes by. Unfortunately, I dont have any other passive income sources, but I’m young so I’ve got time to build them

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Financial Samurai Reply:
April 19th, 2012 at 7:50 pm

One thing to note is that time will go quickly. Time will actually feel like it’s accelerating the older you get, hence don’t think of yourself as so young. You’ll be 30 before you know it!

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Thanks for the reply FS!

I wasn’t trying to out-do you, just saying that you can still travel and donate a lot of time when living on a low income. For those living on less, it’s good to know that there’s still the option of doing those things and that you don’t need a ton of money to live a good life.

It’s great that you’ve traveled so much. I was only pointing out that you don’t need to spend $10K for a 2-week vacation (which is the example you used). If you plan in $15-$20K into your annual spending for travel, like you said, then obviously that eats up a lot of your savings. So, my point is, why not travel for less — you can still see the world that way.

It’s great that you give so much to charities. Have you tried volunteering your time as well? Do you know how your dollars are being used?

Anyway, it’s all good, I was just offering a different perspective, particularly for those who have less income.

P.S. I could speak 3 languages by the age of 5, but I’ve only lived in 2 countries so far. :)

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Financial Samurai Reply:
April 18th, 2012 at 2:54 pm

Cool. Don’t hate me for wanting to travel more luxuriously! I can’t help but wanting to see the world the way I do. It’s what I enjoy and am willing to spend more for that enjoyment. I did a lot of fun backpacking and 2 star hoteling trips when I was younger.

One of my thesis in The Dark Side To Early Retirement is that people who do retire early just haven’t found a job they enjoy enough. Who would quit a job that allows them to be a massage guinea pig and get paid hundreds of thousands of dollars a year, for example? I think you will enjoy reading the article, but don’t get mad at all the truths!

As for entrepreneurial endeavors, I started a network called the Yakezie Network. Part of the verticals is the Yakezie Scholarship, where we give away over $1,000 to three essay contestant winner to spend on furthering their education. I definitely know where my time and money is going, b/c it’s all for the kids, and I mail the checks out myself. Maybe you guys can help promote!

Given that you don’t think I’m doing anything entrepreneurial, do you suggest I write a post specifically about my entrepreneurial endeavors and the income I generate out of it? I just kind of loathe highlighting all this stuff b/c it gets too “in your face”.

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Mrs. Money Mustache Reply:
April 18th, 2012 at 7:58 pm

Thanks for this fun back and forth Sam! I think we can just say we respectfully disagree and leave it at that, since it seems your readers are not enjoying our playful banter! :) Maybe we can chat some more about this at fincon.

P.S. In my earlier comment, I said you have an entrepreneurial spirit, so I don’t question that at all! Keep rocking.

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retirebyforty Reply:
April 19th, 2012 at 2:21 pm

I enjoy the banter. :)
Sam enjoys the high life and that’s good for him. He’ll help keep the economy moving at a brisk pace.

Excellent post!! You definitely have it down to a science. Reading posts like these further motivates me in my quest to retire early. My blog is relatively new so the income from it is slowly trickling in. But while I’m building that up, I find time to focus on my career, as well as other projects to bring in additional income.

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I think my best option for passive income right now is real estate income. My current condo would only be able to produce $1-200 a month if I were to rent it out assuming expenses were 30% of rent. CD rates are way too low to have any type of significant impact right now. And I’d rather invest in stocks with higher capital appreciation than dividend stocks for now(since I’m younger).

I have $500 invested in P2P lending, but not sure if I should put more in. Not really passive IMO. Good post though.

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Financial Samurai Reply:
April 19th, 2012 at 7:53 pm

Yeah, CD rates at 2% are a problem for me. I’m going to look into P2P lending aggressively!

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Your passive income is impressive, especially considering most of it is pretty low risk.

My own biggest investment is one single condominium, but that is more building networth through equity gain and capital rather than passive income.
I only got about $4000 for the whole of 2011 in dividend income. Since then I have sold of my best dividend paying stock because of suspicious market activity, which means this year i am not even getting that.
The amount my CDs are paying is not worth mentioning.

I do have a very well-paying day job, and I am hoping a continued saving rate at 60-70% for the next few years will pay off in at least a semi retirement by 45 years old.

At least now I have some motivation and inspiration!

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Financial Samurai Reply:
April 19th, 2012 at 7:52 pm

$330/month in dividend is not bad, and sounds better than $4,000 a year.

Do you enjoy your current living situation? Do you see it being the same at 45?

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Miss JJ Reply:
April 19th, 2012 at 11:13 pm

I certainly don’t hate my current living situation. I think it is the best I can achieve given current conditions.

The main thing that will change at 45 years old will be my job if I can achieve FI. I think 20 years in the field is long enough to pay my dues for my engineering degree. I secretly long for days of vegging on the couch in front of the TV and letting my brains turn into mush.

Other than that, I think my life would be pretty much the same otherwise.

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Financial Samurai Reply:
April 20th, 2012 at 8:11 pm

Sounds good! I think 20 years is long enough as well!

I have a very well paying job that I can retire from once I have given 20 years of service. I would have a pension for life of 50% of my highest salary. That’s over $60K/year for me so I’m happy with that. I have 10 years left. If I leave prior to that, I will not receive a pension. I will be financially independent before the 10 years (around 5 more years to go), but it is worth me sticking around for the remainder for a lifetime benefit and medical :)

I love how diversified your income streams are. Mine are not as much. The main chunck of my passive income is through my real estate rentals. I own several so in that way I’m diversified within the income stream. I also have dividend yielding investments, and if you want to consider my $50/month in ad revenue income, ha, then I can say I also make enough to pay for movies and popcorn for two :)

I definitely think you have a wealth of knowledge you can share “Financial Samurai will be open for business very soon” and make money off of. As for me, I’m not certain what I can teach or share in terms of making money. I have a weird set of skills. Law Enforcement being my current profession, maybe I can write a book about my stories or homicide scenes and experiences. Not sure. Maybe about my encounter with Britney Spears when she was going through her crisis. There was an officer that was involved in the famous North Hollywood shoot out and wrote a book about it. He’s now retired and making a nice passive income through the book.

My background in finance and real estate and rental properties can be interesting to share. It seems there are so many “How to” questions when it comes to commercial rentals, so maybe I can be like John T. Reed and write on it and charge a fee. All things I have thought about.

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Financial Samurai Reply:
April 19th, 2012 at 7:55 pm

I would DEFINITELY stick it out for 20 years if I could get 50% of my highest salary for life! Let’s say one works from 22 to 42, and tops out at $120,000. Getting $60,000 a year from 42-85, or 43 years would be AMAZING! That’s worth probably $5 million bucks.

More people should consider the public sector. Work on another relaxing job for just $25,000 a year, and you get $85,000 a year no problem. The pensions are worth it!

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I forgot to mention that I actually do not collect until the age of 50. I started out at 24, I’m 30 now (but I worked for the City part time while in College since 2002). That counted as time served! So as of March, I hit 10 years! I get a month and a half off (paid) yearly also. It is no secret why I left the coporate world fast and saw the public sector as a huge opportunity.

So when I hit my 20 years, I will be 44 :) My passive income will support me and once I’m 50, ba bam…pension income kicks in! Medical isn’t until 55, so that little portion kinda sucks, but oh well, I cannot have it all.

Our pension system rocks! It is under attack by the Governer and if certain laws pass, there may not be any money left for me after 10 years into retirement. The proposed pension reform is terrible! If things change, there is no way in hell I would advise anyone to go into law enforcement.

As it is our lives are cut by over 20 years (average) due to the stress of the job. I mean even high blood pressure and ulcers are considered IOD (injured on duty) injuries! Medical studies have backed this. So we get great perks, but it is due to the fact that it is unlike so many other jobs in terms of constant stress. With the reform, kiss giving the City 20 and out, even if you do 30, if you are not 55 by the time you do it, you cannot retire! WTF!!! That’s outrageous! And it comes with a major pay cut also. So you want these new hires to risk their lives and quality of life for pennies and offer them no end in sight? The days of corruption will return. In a major way. Due to all this, the current force will also suffer (no moola at retirement if the funds become dry).

It makes me super happy that I have set up passive income streams. I did not want to ever rely on a single source of income. I cannot say that I predicted the pension reform (I hope it doesn’t pass. Especially paycheck deception, that is the most misleading one), but I knew I wanted to walk away on my terms, whenever. I’m happy to say that I’m almost there :)

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Financial Samurai Reply:
April 20th, 2012 at 10:52 am

I do fear for those with pensions the changes in pension reforms. It’s promising one thing and providing another. That’s not right, no matter how underfunded our pension system is.

You must still be excited though. To have potential benefits down the road to collect must be a wonderful feeling!

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We’ve lived in the States for 2 years a while back and while 1k in Romania goes a lot further than in US the gap is closing mostly because of the Euro. A lot of items are cheaper in the us than Romania and a lot of time I buy things from amazon or other online retailers and have them shipped to Romania and is still cheaper than buying them from here.

Anyway US is a very nice place to live, we’ve lived a little up north from Seattle and we enjoyed it fully.

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Financial Samurai Reply:
April 24th, 2012 at 9:28 pm

Got to love a state with no income taxes! I’m envious Daniel!

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Your asset allocation looks great. It’s like my own allocation but on steroids. Anyway, didn’t realise you had so much capital. Always thought you were working on under $2m but from working on the figures you’ve just published, it looks like you’re pushing anything from $2.5million to $3.5million(probably closer to $3m) in assets which is pretty awesome. Anyway, thanks for posting- it really was very interesting and illuminating.

Roughly $840k capitalisation(an estimate based on your average return and figures provided) in CDs is heaps though at only 4% average return. I’d probably have more invested in property but yeh, that’s just imo and nothing wrong with having that much in risk free investments. Always better to be relatively safe than being sorry.

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Financial Samurai Reply:
April 20th, 2012 at 11:09 am

Hi Mate, nice post you have there reflecting on this post. My post is a snapshot in time for right now and I should allocate more to real estate. However, with the discovery of online income, it is much more fun and easy to maintain than rental property. It’s not like rentals are tough to manage as requests are one or two a year. It’s just not as fun and there is more liability involved.

I’ve got a good slug of change just sitting in the bank for the past 3 weeks which I need to deploy. Right now, P2P seems to be in the lead for consideration!

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L@SMG Reply:
April 21st, 2012 at 12:37 am

Thanks Sam. Well I’m not sure how accurate my estimations were but that’s a pretty good chunk of cash and capital to work with. I’ve got the same problem as you atm- sitting on way too much in savings and no leverage to speak of right now until I buy another property to buy. If only I could say my online income was something worthy of mentioning- so far it’s earned about $15 in adwords (excl. paid links) and that’s not exactly something to get excited about lol.

P2P is interesting…don’t know if it exists in oz(with similar structure) but I’ve seen it mentioned across other US PF bloggers posts for a while now. We had something similar called REITs(Real Estate Investment Trusts) and they all had very bad liquidity problems during the peak of the financial crisis. They were suppose to be relatively low in risk but nowadays in the desire to chase higher yields, professional funds are taking more and more risk. Some of the commentators believe there’s not much risk to P2P but they’re probably all different and I’d be reading the fine prints…

What about buying more property in San Fran? Keeping things simple.

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Financial Samurai Reply:
April 21st, 2012 at 1:32 am

Do you have a post telegraphing your passive income as well like this one?

What would you do with $250,000?

Sam, I have six figure passive income coming from my hotel investments in addition to my six figure salary. I am trying to save as much from the passive income to reinvest back into more commercial investments, and hoping to retire in next 10 years once my daughters are on their own. I’d like to start investing in apartments or attractive single family homes soon too. I also would like to start making some money from blogging and other online sources(I have an app built for hotels and rental businesses).

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Financial Samurai Reply:
April 20th, 2012 at 8:00 pm

Excellent news. When do you decide to call it quits? After the kids graduate from college? Have you ever thought of retiring earlier? What other passive income do you have if any? Thx

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Hmmm, thanks for revealing this information! I was drifting with my spending, but reading your plan has encouraged me to get back on the frugal path that I normally ride on.

I think I need to get more aggressive with my daytime job. Perhaps become a computer consultant since I now have a little bit of side income coming in too…

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Financial Samurai Reply:
April 21st, 2012 at 1:34 am

No prob. Looks like a lot of folks have some good passive income coming in as well.

If you don’t need the extra money, probably not worth bothering no?

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Firstly, I actually did go to the toilet first! Secondly I have very little passive income as I’m just starting out. And thirdly (and I think I’ve asked this before), what do you suggest to someone that can’t physically save more than 20% of their income let alone 55%?

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Financial Samurai Reply:
April 22nd, 2012 at 6:15 pm

I donno mate, with the title of “Multi Millionaire”, saving 20% of your after tax income should be a walk in the park!

Without knowing your expenses or income, I can’t help you much. Sorry.

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I came here from Nelson’s site, and I gotta say, WOW! Great job methodically developing so many income streams and having good analysis on each one. Not only that, none of your passive income comes from online. Nelson must be pissed! hahaha.

Looking forward to reading more about your strategies.

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Financial Samurai Reply:
April 23rd, 2012 at 5:40 am

Tell Nelson ‘hi’! :)

Good to have yah.

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I do have a post outlining my passive income but no figures: http://smartmoneyguide.blogspot.com.au/2011/03/update-on-progress-bars-and-income.html

Looks similar to yours in structure. Obviously with less funds. It would be really uncomfortable for me if any stranger on the street or random ppl who knew me in real life, knew exactly what I owned, what I earn and what I have.

Strategy A.
With an extra $250k on top of what I already have:
* $200k deposit to buy a $1m house. (80%LVR)
* $50k into direct stocks (banking (CBA/WBC), mining(BPT/BHP), FMCG mainly food companies like Wesfarmers, Woolworths, Coles)

Strategy B.
If I had nothing at all and you gave me $250k tomorrow (dream on right?!)
* $100k deposit on a $500k apartment (80%LVR)
* $80k deposit on another $400k apartment (80% LVR)
* $30k in stocks (see above for allocation)
* $24k three months emergency fund placed in mortgage offset account(3 months of two mortgage repayments plus strate levies for both properties $18k, 3 mths living expenses $6k)
* $16k left -> save that for building up another deposit/down payment for either a studio/1or2 br apartment or a house

What would you do with $250k in similar scenarios?

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Financial Samurai Reply:
April 22nd, 2012 at 5:58 pm

I love how you say you’ll buy a $1 million house! Nice!

It might be bc of my phone, but I can’t tell from your charts what is your passive income amount, current savings, and income?

I’m thinking of investing $200,000 in P2P, but I need to meet with someone from LC r Propser first. I’ll keep 25-50k liquid just in case I see a stock investment I want to buy.

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L@SMG Reply:
April 23rd, 2012 at 1:04 am

Sounds nice but for $1m around our target suburbs, it buys an old dingy house close to the station or a renovated house further away from the station: http://smartmoneyguide.blogspot.com.au/2011/10/house-hunting.html

Our roads are so congested it’s like a parking lot every single day.

I’m not going to post my #s in public. Will send you some breakdowns in an email. I’m sure you’ll perform due diligence on P2P providers before investing your funds with them. Don’t know if you actually need 25-50k for liquidity since you’ve got all the over $800k in CDs (not sure how your US CDs work but if they’re equivalent to TD over here then ok, fair enough).

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Financial Samurai Reply:
April 23rd, 2012 at 5:57 am

You can withdraw/use CD interest income penalty free, however you can’t withdraw the principal from CD early without facing a penalty.

So yes, I guess you’re right. I perhaps wouldn’t need 50K in liquidity since I can withdraw $33,600 a year and have the various other sources of income.

That said, I love to have dry powder to make bets when I see a kink. There are lots of kinks, and as I wrote above, I wish I bet WAY MORE in the private real estate fund eg $200,000, instead of just $50,000. I was stupid and too chicken in retrospect.

Am I missing something? How are you generating $2800 per month on CD interest income? CD rates are down to 2% now. Even at 5% with daily compounding, you would have to invest over $600,000. At 2%, over a million. Unless you are including the initial deposit as income.

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Financial Samurai Reply:
April 22nd, 2012 at 5:43 pm

There you go. You aren’t missing anything at all.

From the post:

“I’ve predominantly invested all the savings in long-term CDs that have returned 5.5% all the way down to 2.5%.  Currently, my risk-free return is averaging about 3.75-4% a year.  These aren’t sexy returns by any means, but I sleep very well at night and have also never lost money in this portion of my wealth for the past 13 years.  A smaller portion of my savings goes towards my trading account.”

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brian Reply:
April 23rd, 2012 at 11:55 am

Ok FinSam. This website is awesome! Its a confidence and enthusiasm builder. Thanks for the response and confirmation.

I just started buying some 3 year CD’s, trying to create a ladder program. I’m not very impressed with the returns, but at least its safe. Stocks can lose 5 years worth of gains in one day.

I’m thinking about temporarily abandoning the CD’s and purchasing a rental property while prices are low. Passive income streams.

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Financial Samurai Reply:
April 24th, 2012 at 9:29 pm

Good to hear you’re motivated Brian. You might want to Google “The DVD Method To CD Investing”. I think that’s the best strategy!

L@SMG Reply:
April 23rd, 2012 at 1:08 am

Brian, at an avg return of 4%pa, Sam has approx $840k in CDs hth…

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You shouldn’t be so rough on yourself. In hindsight, everyone would change their historical actions (if they were wise). What if instead, that private r/e fund bought in Detroit or Philadephia or pretty much any of the dodgy US states that are undergoing structural unemployment? Consider yourself fortunate to have avoided those bad investments. I personally know some friends who have lost over $100k in capital in the last 4 years. Aggregate loss across the three I know is $350k loss.

In hindsight, they would have exited all their trade positions, all their margin loan, all their CFD trades and liquidated their ‘long term’ positions. Thanks for the enlightment. US CD=OZ TD in its features. In light of your plans, it would be a good thing then to invest the $200k and retain $50k for a diff investment.

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Financial Samurai Reply:
April 24th, 2012 at 9:31 pm

I’m really not being that hard on myself. At least I put some capital to work in the downturn instead of runaway like a little baby!

I’ve lost $100K in capital before, and it’s not pretty. However, I’ve also gained that amount and more. It all becomes kinda funny money for a while, and you’re just trying to outperform the broader averages.

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cord62185 Reply:
June 12th, 2012 at 5:41 pm

Whats your opinion on my earlier post?

“Awesome points. I don’t understand you not paying off the mortgage.
e.g- Mortgage 300k*.03175=$9375 interest.
$9375*.35(tax rate for this example. Actual is probably lower) =$3281.25
So you pay the mortgage company $9375 to keep from paying the government $3281.25?”

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Financial Samurai Reply:
June 12th, 2012 at 5:46 pm

Simply b/c I like liquidity and believe I can beat 0.3175.

Awesome points. I don’t understand you not paying off the mortgage.
e.g- Mortgage 300k*.03175=$9375 interest.

$9375*.35(tax rate for this example. Actual is probably lower) =$3281.25

So you pay the mortgage company $9375 to keep from paying the government $3281.25?

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Do you include the cost of purchasing your own health insurance when calculating future living expenses?

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@cord62185

What’s your opinion?

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@L@SMG

Out of curiosity and if you don’t mind: how old are you Sam? You may have posted this somewhere else on blog so forgive me if redundant. As i read i can’t help but wonder and appreciate your feedback. I am early 30′s

Congratulations on your sucess toward FI as well. $15k passive is a lofty goal and i have no doubt you’ll get there. Since you are clearly a driven individual have you put a launch date on your consulting idea? Are you thinking of getting or already have a CFP, CFA or any Series licenses e.g. 6,7, 65, 66? Thanks

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Financial Samurai Reply:
June 24th, 2012 at 2:48 am

Hi Ken. I’m in my mid 30′s. I’m halfway to my $15K/month passive income goal, and that excludes all other incomes besides CD, rental, and dividend income.

Because online income takes work, I’m not including it as passive, even though it’s a lot of fun and is my 2nd largest income source now!

BTW, how did you find my site?

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Ken Reply:
June 24th, 2012 at 2:59 am

Google searches regarding retirement. I found you months back but never commented as usually sites like these don’t accept guest comments. I was pleasantly surprised to see when i clicked submit it posted something! Cheers to your open format as it helps greatly to improve collaboration and idea sharing. Been crawling around your site for a good number of hours now and will def check back. Email me if you ever open for affiliate type of marketing or featured guest posts etc. I have a day job, do active trading and have some entreprenurial endevors as well. Passive income is key to getting out of the rat race so to speak. Time IMO is the most precious commodity we have and money is a mere tool to create the perception of more time.

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Ken Reply:
June 24th, 2012 at 3:12 am

Google

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@L@SMG

How old is Sam-urai?

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I just came from retireby40 and love Passive Income. I see more and more of this rental property income. I am thinking about it but have non yet. Great post!

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Financial Samurai Reply:
July 1st, 2012 at 12:23 pm

If you love it, you will build it! Good luck to you Josh!

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Thanks for explaining all this! I’m just starting out but I plan to stay debt free and be financially independent. This gives me a lot to think about.
Chase

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Financial Samurai Reply:
July 14th, 2012 at 8:48 pm

Right on man! I think you’re going to do great Chase!

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“If one can get their passive income to a level which makes them happy, collecting unemployment benefits after paying all those taxes for all those years is a logical fantasy.”

The suggestion here seems to be that unemployment can be considered just one of many income streams and that is alright. This just seems plain wrong to me.

When I think of the reasoning behind unemployment checks, I think of people who unexpectedly lose their jobs and need some money to stay afloat while they are actively working to get another job. Maybe the actual letter of the law is different (though I think the law requires you to honestly say you are searching for another job) but even if it is I would propose that it should be changed to reflect this ideal. In the meantime I propose civil disobedience in the form of not taking unemployment if you don’t really need it. If you’re with me please update your post (or write a new one). Maybe something along the lines of “just cause the government does/does not allow something doesn’t make it right”.

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A few questions around your focus on CDs, rentals, and dividends:
+CDs – aren’t you afraid of inflation eating away at the money here? Seems like you’d be better off in a stock/bond portfolio.
+Rentals – it sounds like your focus is on owning rental property, do you think you’d be more diversified with a REIT?
+Dividends – I’m assuming you are large cap focused on a few companies. Don’t you think a mutual of dividend paying stock would be more diversified?

Sure you might hit a homerun with the rental / dividends focus, but what is the risk you are taking on? A few large companies can fail, a local rental market can crash, but diversified mutual funds should offer less risk (and less headache).

I’m trying to fit your strategy above with my strategy (401k / IRA / taxable / pension). I’m a heavy index / mutual fund person, and it seems like these aren’t your primary targets. They almost sound like “nice to haves”, almost like I treat social security. Thanks for helping me see your perspective. ;)

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Financial Samurai Reply:
August 1st, 2012 at 8:52 am

Check out this post: http://www.financialsamurai.com/2012/07/15/stop-your-limiting-beliefs-about-wealth-and-retirement/ for inflation.

I like physical rental properties, and dividends from large cap, blue chip names for the least amount of vol possible.

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flat_broke Reply:
August 2nd, 2012 at 12:30 pm

I did some research into the actual numbers for CD rate vs. Inflation and found this site that has some hard data (not mine). It looks like you are right, but I’d contend a stock / bond portfolio risk is worth the extra percentage points you’d gain over 30+ years (there will be more volatility). I suppose the same could be said for an individual stock, but the risk would be extremely high :
http://www.freeby50.com/2011/08/historical-cd-savings-rates-vs.html

As for the “physical rentals” do you have a post about that? I’d be interested in your experience (return) with that vs investing in a REIT. I admit I’ve toyed with this idea, but am not sure if the extra work / risk is worth it over a REIT index fund.

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To me passive income is the “holy grail” so to speak. I can work on MY TERMS and my efforts and epic successes are mine to celebrate. When something goes right I get income generated regularly without any effort. Only effort is (if any) needed at the beginning, when you setup.

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Hey, Your so right.
Your message is to much to absorb. The one thing I got was that you are in a win win financial bliss! Now if you could break it down one slow step at a time that would be helpful;or maybe I could teach guitar lessons to you at 40.00 an hour . Wait maybe I could teach you how to drive a truck with air-brakes, ah wait maybe teach you how to cut hair , do a manicure, pedicure. I hope I haven’t subcribed to anything that will take any monies away.Looking forward to a reply from you

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Hi Sam,
Really Great article! I just had a question about how paying off debt other than your mortgage factored into your plan over the past 15 years. I am getting married soon and I want to start saving 50% of our income (investing some), but my soon to be husband has 10K in credit card debt, and I have student loans and a car payment. Did you focus on paying down debt first? It seems to me that since I am not going to get 6% (my student loan rate) on a CD or a savings account, I should pay off our high interest debt fist and then start working on multiple income streams.
Thanks!
Katie

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Financial Samurai Reply:
August 13th, 2012 at 10:20 am

Hi Katie,

Yes, I focused on paying off my no mortgage debt first. I never had any revolving credit card debt as I always paid it off every month. I did have about ~$40,000 or so in student loans which I paid off over 4 years. It felt GREAT to pay off the last $10,000!

With 6% interest rates (mine was 2.8% for student loan), I’d probably use 80% of your free cash flow to pay off the student loan debt, and 20% to build your savings.

Good luck!

Sam

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Katie Reply:
August 13th, 2012 at 11:53 am

Thanks Sam!

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I enjoy reading your entries and find that they get my mind going with lots of possibilities for the future. Your concept of passive income is great and I think that it is a great oppurtunity for everyone. My wife and I are finally in the position to save (~$4,000/month) and have been doing so for several months now. I would love to save over next 6-7 years with a goal of about 300-400k by age 40 so that income could be used to pay our living expenses with passive income. My biggest challenge is where to start. We both love our jobs and fortunately work in the health care field. That means that I have no background or knowledge of finance and use logic and intuition as a basis for making decisions as oppose to education and experience. Given the info, where would you start putting money?

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Hey Sam,
Great post. Financial Freedom is different for everyone, but working towards it is our common goal. Thanks for the tips :-)

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I keep this post open on my browser. It is my motivation to get my finances working for me! We are setting small goals and keeping a close eye on the money we do have.

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Sam,

Nice to see some commonsense advice with building passice income, and lifestyle design. I think to many are flowing in the wind, and are ready to be smacked in the mouth when it comes to retirement age…

regards

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Printed and posted on my wall….BLUEPRINT for the next 10 years. Thanks!!!!!

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Financial Samurai Reply:
May 9th, 2013 at 5:45 pm

Wonderful! So glad to hear the post has helped you. Best, Sam

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