Financial Samurai Passive Income Update 2014-2015

Financial Freedom Through Passive IncomeWelcome to my annual passive income update. I don’t do these updates more often because nothing changes too much on a month-to-month or quarter-to-quarter basis. Do you really want to see that I increased or decreased my passive income by $1,000 from the month before? I think not.

Here are some immediate reasons I can think of for why building passive income is a good idea:

1) You likely won’t want to work forever, no matter how much of an eager beaver you now are.

2) Unfortunately bad things happen all the time e.g. layoffs, financial meltdowns, theft, etc.

3) It’s nice to provide as solid a financial foundation as possible for your family and loved ones.

4) You broaden your knowledge and expertise across various topics so you can seem erudite but remain a little dumb.

5) You’ll reduce financial stress and feel happier that not all your income is tied to one main source.

6) You will decrease your chances, your spouse’s chances, and your children’s chances of ever having to depend on the government to survive.

7) You will have more freedom to do things you truly want to do. This feeling becomes more intense as you grow older given you become more aware of the finality of life.

8) You can push yourself financially beyond what you think could ever be possible. Who doesn’t love a good challenge except for the people who have everything handed to them?

This is my third annual passive income report where I have a goal of making $200,000 in relatively passive income by mid-2015 after leaving my job in early 2012. I started off with roughly $78,000 a year and I’m currently up to a projected ~$150,000 a year if all goes well after renting out my old primary residence. Life is uncertain, and I’m sure things will change.

To clarify the meaning of passive income, I do not include income from consulting, freelancing, asset sales (stocks, bonds, real estate, baseball cards etc), and business income. I’ve got other targets for these revenue streams that I might discuss in a future post, but probably not. The goal of passive income is to have the income largely come in without doing much work at all. But in order to not do much work for money, we’ve first got to work very hard for our money!

One thing to note is that I started my passive income journey before writing about Stealth Wealth. $78,000 a year is roughly the median income in SF, so it wasn’t a big deal. But I promise that if I ever breach $200,000, I will go dark and never write any specific figures again. If I do, you’ll know that I’m lying to blend in because that’s what Stealth Wealth is all about. 

Why Women Earn Less Than Men – A Woman’s Perspective

The following post is from Holly of Club Thrifty. The article was originally suppose to be posted on a corporate blog I’m managing, but it was deemed too risqué so I’ve decided to publish it here. It’s always good to hear a woman’s perspective on this touchy subject. Never let good words go to waste I say! 

Experts use the term “gender wage gap” to describe the ongoing disparity between men and women’s average annual earnings. According to recent government data, women earned just 80.9 percent of what men brought home in 2012. That’s certainly disappointing, but what’s more disconcerting is the fact that it may actually be getting worse. According to Bureau of Labor Statistics, women earned approximately 82 percent what men did in 2011- just one year before.

Several other studies claim that the gender wage gap rests at various percentages, although most studies tend to agree that women of color and women older than 35 often earn the least. These statistics become even more troubling when you consider the fact that women were the sole or primary earner in 40 percent of households in the U.S. in 2011.  The gender wage gap also appears to be somewhat elastic, with varying levels of intensity from industry to industry:

ECON NEW

*Economist, 2012

But, are salaries really impacted that that much by gender alone? While a quick glance at the statistics might lead us to believe that the gender wage gap is caused entirely by gender discrimination and crotchety old women-hating bosses, many believe there is much more to the story than the raw data can possibly portray.

Let me give you an example, “Real Housewives” style.

If You Produce Nothing How Can You Expect To Make Any Money?

Produce nothing? Have a double bagel

Produce nothing? Have a double bagel

Every time I walk into a coffee shop, I see guys fiendishly coding on their laptops. Although the chances are slim to ever make it big as an entrepreneur, thousands of predominantly 20-something year old men try their luck anyway. Huge respect for anybody who tries.

100% of the non-family tenant applicants for my previous house were males in tech, internet, finance, or consulting. No wonder why fellas complain that San Francisco is turning into a sausage town. At the same time, women also complain there are no good men in San Francisco either. Such a conundrum!

The title of this post may seem obvious, but I don’t think it’s obvious for the folks who 1) complain on the bus why their life sucks, 2) complain on message boards why what someone else wrote is terrible, or 3) complain on here why it’s too hard to save money or spend less. There has to be action, otherwise you’re just wasting everyone’s time.

Every single company we know of today started with someone who had a vision and a determination to produce something new. If you’re working 40 hours a week or less and wondering why you aren’t getting ahead, you might as well move to Europe where life is good and everybody makes roughly the same. A 40 hour work-week is an arbitrary amount to work given we have 168 hours a week.

A Massive Generational Wealth Transfer Is Why Everything Will Be OK

Bank Of Mom And DadWhen I bought my previous home 10 years ago my 68 year old neighbor stopped by to say “hello.” He was the godfather of the block, having bought his building back in the early 70s. He gave me the inside scoop on all the neighbors, and one neighbor stood out in particular.

He said the house across the street was purchased a year before mine by a family who wanted some place for their son to live as he attended UC Hastings School Of Law. The purchase price? $1.45 million for a 2,100 square foot three bedroom, three bathroom house. The son would host at least one fraternity-like party every year, but other than that, the house was pretty tame. The son continued to live in the house after law school and now it looks like they might sell.

For 10 years, the son not only lived for free, but he probably made rental income as well thanks to his two roommates. His $120,000+ law school tuition was also probably full paid for by Bank of Mom and Dad and I’m not sure how he paid for his $60,000 Audi S4 unless you make a lot of money as a law student? If the house ever sells, I wouldn’t be surprised if he gets to keep the $1 million+ in profits.

It’s clear to me that my neighbor is going to be quite alright, even if he doesn’t work for the rest of his life. If you’re willing to accept so much assistance that’s beyond what you can afford, then why bother working at all? Just mooch off your parents forever!

My Other Neighbor

About two years ago my 32 year old next door neighbor came home in a brand new, $48,000 Toyota 4Runner Limited. I thought it was a quizzical purchase because the car couldn’t easily fit in his garage. I saw him struggle for five minutes just to get the beast in.

Even so, I was intrigued and wrote a post about it called, “Dealing With Money Envy” because I was jealous. He’s lived in his parent’s flat for the past 11 years since college while his parents lived in their other home in the South Bay. With the average SF rent for a two bedroom at $3,800 a month, of course he could afford a new 4Runner. He’s saved $400,000 in after-tax money by not paying rent for 11 years.

My neighbor is a nice fella who now works in real estate with his father. For 2.5 years he got to travel around the world in his 20s without holding down a job because he could. His mother would stop by and share with me how his son was having so much fun. Meanwhile, I worked my ass off all throughout my 20s just so I could be able to afford the house at age 27. His carefree lifestyle is what made me the most envious. The car was just an extra kick in the nuts.

When I was moving out he asked whether I’d like to sell my house to him (to the family really). If he could really afford my house, then his finances must be in great shape because valuations have gone a little nuts as you can see in this chart.

Confessions From A Spoiled Rich Kid

Flying Over San Francisco

Flying Over San Francisco For Fun

The following is a guest post from long-time reader, Samurai Marco.

When Sam first mentioned that he was accepting guest posts from his readers, it made me wonder what, from my financial journey, I could share. After all, you’re already all a bunch of financial samurai’s yourselves, right? Is my journey interesting enough? At 43 years old, have I made enough mistakes?

I grew up a spoiled rich kid in Cupertino, California, about an hour south of San Francisco. My father was a one of those, and I hate to use this term, “Serial entrepreneurs.” He started a lot of technology companies, a couple went public, some were acquired and, of course, a few failed. I remember my Dad, back in the early 80′s, bringing home the first prototypes of the Macintosh and Compaq computers and even the first cell phones.

His summer parties were filled with the “who’s who” of Silicon Valley. I remember, in particular, one Christmas party in 1997, Gil Amelio and Steve Jobs made the deal for Apple to buy NEXT that night at my Dad’s house. The Forbes reporter, who was there, leaked it the next day I’ve gone flying with my Dad and Larry Ellison. I’ve talked stocks in the swimming pool with Eric Schmidt. So yes, I was surrounded by a lot of money and power and got a lot of attention for being my father’s child.

To say I grew up spoiled really is an understatement It’s taken me a long time to realize how “out of touch” my reality was back then. We flew first class to Italy every summer, sometimes twice a year, to visit family. We lived in a big house with a swimming pool in a “safe” neighborhood. My parents bought us whatever we wanted.