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Early Retirement Extreme Forums » Money Questions

1. 

   jacob
   

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   Joined: Jul '10
   Posts: 3,298

   While most have the goal of replacing their job income with some sort of capital income, I've found that on top of that income, during the ~3 years between the physics and the quant job I always had 1-3 projects that also made money; enough to live on actually.

   I've posited that if one is serious about developing multiple skills, making extra money is almost inevitable. For some it may even be a primary strategy (see "How to live without a salary"); essentially the working man strategy of chapter 3 in the book.

   However, am I correct in this presumption? Will everybody eventually find opportunities to make a quick buck from their hobbies (e.g. the aerobics fanatic eventually being asked to sub for some classes) even without trying very hard?

   Or are there retirement occupations (TV watching, marathon running, ...?) where this is NOT a given?

   Posted 1 year ago #
2. 

   aussierogue
   

   Master
   Joined: Nov '11
   Posts: 344

   good post jacob

   i think you are right. but i would also guess that those of us who ere are also accutely aware of our finances and are looking either consciously or subconsciouly on how to monetise just about everything!

   Its a bit like when you look for a new car. You chose the car you think you need and guess what you start to see them everywhere.

   Similarly ERE for many means living on much less and whenever "any opportunity" arises we see the potential for some income...to help us keep living the dream..

   Necessity being the mother of invention

   Posted 1 year ago #
3. 

   dan23
   

   Apprentice
   Joined: Aug '10
   Posts: 49

   When I retire, I would like to read, watch significantly more open courseware, watch tv and travel (all things I do now to a lesser degree). I don't see how any of these make money unless you actively try to make money from them.

   Now I may still do activities that generate money (though I'd rather not), but at this time, I only imagine doing so due to lack of confidence in my long term financing if my sole income source is portfolio draw-down.

   I do also find that if I do something in order to make money (even if it is something I would otherwise do) it is no longer fun and I would therefore probably avoid mixing any hobbies with money making unless I felt financially insecure.

   Posted 1 year ago #
4. 

   jacob
   

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   Joined: Jul '10
   Posts: 3,298

   Could there be a split between the "producer" and "consumer" side? Aside from reading the occasional fiction book (currently the Dune follow-ups), almost all my interests can be turned into production (was that chapter 4 or 5? ;-) ) at some "low"(*) level.

   (*) By which I mean it scales in that it allows me to make a few hundreds bucks/month but it wouldn't be enough for a full time interest.

   Posted 1 year ago #
5. 

   george
   

   Journeyman
   Joined: Mar '11
   Posts: 211

   Its about balance. If you do a job you hate, make sure you also find time to do things for the hell of it.

   Eg somebody i know played sport, became a secretary of their sports club, and got paid a few hundred dollars a year for spending a few hours doing something they love.

   Tutor because you love it and it might end up getting paid.

   Take neighbours dog for a walk, you might become a dog walker, or they might babysit for you.

   Work on a community garden, you might get veges

   The key is surround yourself with things you enjoy, expect nothing and you never know.

   Some things like sitting in front of a tv, I don't do it because it doesn't make me feel good, it's not that I would never gain money from it.

   So I don't think its a given that you're going to be paid for whatever skill you pick up, but if you keep your mind open and are adaptable you never know.

   I'm still trying to work out why opportunities come my way.

   I have this intrinsic belief that if I do something for myself, if I include people who need me, it will be so much more enjoyable. I have a strong need to be needed.

   Posted 1 year ago #
6. 

   mikeBOS
   

   Master
   Joined: Nov '10
   Posts: 554

   Will everybody eventually find opportunities to make a quick buck from their hobbies...even without trying very hard?

   Well, I think as soon as you say "everybody" in a question like that, the answer automatically has to be "no" because you can always find an exception. But if you're asking about "the great majority of ERE-ers", I still don't know. It seems likely just because getting to ERE for many people will involve creating side incomes that are easy enough to maintain even after crossing over into 'retirement'.

   I know I want to do things like have a large garden, home brew, build electric cars, and tinker with robotics and alternative energy. I'd be pretty shocked if I wasn't offered good money at some point down the road for some of the stuff I make/build.

   But I suspect there's a pretty large group out there without any plans of doing much beyond, as dan says, reading, studying, traveling and other stuff like hiking, biking, movie-watching, gardening, playing video games, hanging out with friends. I mean, if you don't have any desires to become a near-expert in something, and the idea of building physical objects or software doesn't appeal to you, and you have no interest in making music or writing or something like that, you could certainly still have a fulfilling early retirement without necessarily having much chance of stumbling upon accidental side incomes. - Seems to me.

   Posted 1 year ago #
7. 

   Felix
   

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   Joined: Nov '10
   Posts: 401

   One aspect of this is the motivation for early retirement. For Jacob it has been trying to see if it can be done, and he did a job he liked most of the time - at least enough to work 16-hour days.

   For many, early retirement is an escape from working hell. I think this frames ones attitude towards production. I guess that's what Marx meant with alienation of work. If working (production) has started to mean drudgery to you, you will dream of a life without drudgery, i.e. a life without work in that mental framework. This shifts one into the consumer state where you don't produce with the goal to avoid drudgery. It may take some time to unlearn this association, which is all too common and often even learned early at school.

   Posted 1 year ago #
8. 

   J_
   

   Master
   Joined: Nov '11
   Posts: 354

   I have following sources now (after FI in 1999)
   Interest income from ca 15 different banks with different lasting deposito's
   state pension per september this year
   some pensions from former jobs per september this year
   working on a refurbishment project to make ready for selling this or next year (the hobby part of income)

   Posted 1 year ago #
9. 

   jennypenny
   

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   Joined: Jul '11
   Posts: 1,342

   >>Will everybody eventually find opportunities to make a quick buck from their hobbies even without trying very hard?
   Yes (sort of). I think the opportunities do present themselves, but you have to be willing to put yourself out there a little. To do it consistently you have to develop and maintain contacts. For some (me), that's the hard part.

   >>Or are there retirement occupations (TV watching, marathon running, ...?) where this is NOT a given?
   Even with something like running you'd be surprised, but I guess it depends on what you'd call income. You can organize teams for races to have your own fees waived, or organize races or "host" local training teams for big races and make a small buck. Even being the local supplier of an obscure product related to the hobby can make a little money and get you products for free or at cost. I think for a true hobby ("consumer" as you put it), a more realistic goal is earning enough in product or income to subsidize the hobby.

   At the moment, I've found that I have more income from investing than I need but I'm lacking in social capital. I've decided to try and use my side interests to develop more social capital instead. (e.g. instead of selling my extra seedlings at the farmer's market I'm going to attend a swap) I suppose the best goal would be to find hobbies that could produce both.

   Posted 1 year ago #
10. 

    J_
    

    Master
    Joined: Nov '11
    Posts: 354

    In addition to my post above: the side income from my hobby (refurbishing real estate) gives me not a couple of bucks for some months, but the equivalent of one or several years of my living expenditures. Since 1999 I have done 3, the time involved varies but the projects lasted from one to 2,5 Year. And it keeps me connected in the social senseJ Jenny mentions.

    Posted 1 year ago #
11. 

    Hoplite
    

    Master
    Joined: Dec '10
    Posts: 489

    Almost all activities can be turned to making money with some effort and ingenuity (and, as @Felix notes, a change of mindset). People who keep exotic birds collect the dropped feathers to sell on ebay; a fellow who collects binoculars (yup) knows the values well enough to buy and sell, improving the collection and making some money as well. At least until the Dept. of Feathers and Binoculars breaks down their doors and arrests them for not having the proper licenses and training.

    But if you're looking for activities that can't be used to make money, a typical university course catalog is a goldmine :)

    Posted 1 year ago #
12. 

    jennypenny
    

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    Joined: Jul '11
    Posts: 1,342

    >>But if you're looking for activities that can't be used to make money, a typical university course catalog is a goldmine :)

    Too funny! (although with DD looking at colleges I'm not sure whether to laugh or cry)

    Posted 1 year ago #
13. 

    chenda
    

    Master
    Joined: Jun '11
    Posts: 371

    As I'm going for semi-ERE initially, I will be having both investment income and working income, but once I get to full ERE it'll just be investment income.

    I agree with JP, it takes some effort to turn a hobby into a income source which I'd only want to happen by accident, if I was acutally enjoying the process. Its often said its easy to ruin a hobby by turning it into a business.

    @ Hoplite haha! - I'm sure theres a 4 year degree in 'Binocular Studies' somewhere ;)

    Posted 1 year ago #
14. 

    Cashflow
    

    Apprentice
    Joined: Aug '10
    Posts: 97

    Section 3.1.4 of the ERE book talks about the Renaissance man, who can lean towards either asset-backed job independence or jack-of-all-trades job independence (or a combination of both approaches).

    Having profitable hobbies focuses on the jack-of-all-trades approach. We can turn our time into money by selling our skills on a time or project basis. Since we enjoy doing the work, we are in effect getting paid for having fun. But because we have job independence, we can afford to be choosey about the work we agree to accept.

    The other approach of asset-backed job independence focuses on the managing and investing of our financial assets. Chapter 4 of the book Safe Strategies for Financial Freedom by Dr. Van Tharp, for example, discusses maximizing what we already have. We make our money work as hard as it can for us by deploying it in appropriate income-producing assets.

    As we discovered during the financial crisis, however, the world is always changing and what worked before may not be the best approach to use now. But all that means is that we have to keep up with the markets and make the necessary adjustments as things change. Tax law changes, world (i.e., "macro") events, and anything else that might impact our investments in some way need to be watched.

    Thus, investing can be our profitable hobby. As our investing skills increase and our investment gains compound, investing turns into our very profitable hobby. We transition from "early retirement" to "early retirement with a margin of safety" because our living expenses will be covered more than once by our investment income. An unexpected reduction in investment income or an unexpected increase in living expenses can be absorbed to the extent of our margin of safety.

    Posted 1 year ago #
15. 

    jennypenny
    

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    Joined: Jul '11
    Posts: 1,342

    Did FinSam's post prompt this question? I finally got a chance to read through it. If someone didn't see it http://www.financialsamurai.com/2012/04/16/achieve-financial-freedom-slice/

    I've been restructuring our finances in a related way since reading this post on Budgets are Sexy last fall http://www.budgetsaresexy.com/2011/11/gigs-for-goals-my-new-favorite-mindset/

    It's a long way from a couch-potato-portfolio approach. I'm a hands-on type so it works for me. I like the idea of having different projects to engage (entertain?) me.

    Posted 1 year ago #
16. 

    jacob
    

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    Joined: Jul '10
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    Haven't read them. It was more spurred by the recent questions on when to quit + budgets that are 3x mine that seemed to lean towards the conventional financial/consumer side, that is, quantitatively different but not qualitatively so. This suggested to me more of an early-early retirement with just the retirement date changing than a fundamental change.

    To me the money question is at the bottom of top 5 in terms of determinants (only one chapter in the book is dedicated to it) whereas for some it seems to be #1. Hence the question...

    Posted 1 year ago #
17. 

    jennypenny
    

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    Posts: 1,342

    Based on what you just said I wouldn't recommend reading FinSam's article. I liked the idea of diversifying income streams, but he talked about a monthly budget of up to $15K! That's 3x my budget for 5 people and mine includes medical bills that average $1k/month. Everyone's different I guess. I'd rather do everything myself instead of paying people to do everything. I wish I was smart enough and self-sufficient enough to get to a point where I didn't need money at all.

    Posted 1 year ago #
18. 

    Cashflow
    

    Apprentice
    Joined: Aug '10
    Posts: 97

    > Jacob:
    > To me the money question is at the bottom of
    > top 5 in terms of determinants (only one chapter
    > in the book is dedicated to it) whereas for some
    > it seems to be #1. Hence the question...

    This was one aspect of the ERE book I noticed when I first read it -- the lower priority of passive income relative to "human capital" (i.e., skills-based income generation). Perhaps the difference in priority for me is that I really don't have good physical skills (nor do I have the greatest of people skills either). I'm all thumbs when it comes to using tools, for example, and end up either doing a poor job or I hurt myself. I find it better to hire someone else to do these sorts of activities for me.

    My early retirement is based on Tharp's definition (from his book titled Super Trader): "Financial Freedom -- A financial state that occurs, according to Van Tharp, when your passive income (income that comes from your money working for you) is greater than your expenses. For example, if your monthly expenses total $4,000 and your money working for you brings in $4,300 per month, you are financially free."

    The only problem I have with this definition is that there is little wiggle room if the income drops unexpectedly or the expenses increase unexpectedly. I prefer instead to have at least a 2X margin of safety (with more MOS being better than less MOS) before I feel comfortable having to depend entirely on my money working for me for my financial life support.

    I also discovered that having "nothing to do" because I didn't need to go in to work anymore to be quite boring (since I no longer seemed to have a purpose in life). Rightly or wrongly, some of us are defined by our occupations.

    While I may have trouble swinging a hammer, I have no trouble (and I really enjoy) keeping my financial spreadsheet updated with my investments. I also enjoy the stimulation that comes from income-generating assignments that draw upon my human capital. To each his or her own.

    Posted 1 year ago #
19. 

    george
    

    Journeyman
    Joined: Mar '11
    Posts: 211

    Please forgive my ignorance, I don't know what the determinants are in the book. So feel free to enlighten me.

    @cashflow Agree about the nothing to do, thats why I now struggle with retirement being the time when passive income covers expenses. The idea of doing nothing is not what retirement is about for me.

    To me early retirement is when you have complete freedom to live the life you want. Some people may want to work for the rest of their lives, if they work for this reason, no matter what their income, expenses, perhaps they could be considered early retirees.

    Personally I hate the stock market etc. If I was involved in that I wouldn't consider that passive income because I would only be doing it to earn money, and I would be working playing with spreadsheets, because if I had the choice i wouldn't spend time on the markets.

    I also have a degree of sceptism about the markets and banks, making myself as self sufficient as I can and being an asset to my family, community, these seem to be of much the same amount of importance to my retirement goals as the financials.

    I like the thread here about Lulu and how life is temporary. Many people have put money into the markets and housing, only to have it taken away from them.

    Every day around here I see another house bulldozed,a house that in may case people have saved for all their lives, and gardens to provide food etc all gone in one day. They get paid half the value of their properties, and have to start all over again on small properties.

    I guess the answer is to be adaptable and have as many skills, different supports as you can gather.

    These are just my thoughts and with Cashflow I again agree to each his or her own.

    Posted 1 year ago #
20. 

    mikeBOS
    

    Master
    Joined: Nov '10
    Posts: 554

    This suggested to me more of an early-early retirement with just the retirement date changing than a fundamental change.

    It seems to me there are going to be people following along a continuum. You'll have some people building their own rakes, and other people going to restaurants on a regular basis, and they'll both have retired at 30 and are still fairly frugal as compared to the average. I don't know if there's really a bright line you can draw where people cross over from super self-sufficient FIRE'd person to totally consumer-oriented FIRE'd person.

    We all do some things ourselves, and buy other things. Something one person might buy, I might build, and vice versa. So it's hard to say, without extreme examples, if someone is closer to the 'fundamental change' of Jacob's ERE and or just plain old ER.

    Posted 1 year ago #
21. 

    jacob
    

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    Joined: Jul '10
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    The practical reason I'm asking is that it has bearing on the "when is enough"-question. Some hobby-ish thing that pay $100 on average is worth $30,000 in savings (insofar that hobby activity of a similar can be repeated in perpetuity at a 4% discount rate) which is equivalent to one year's of saving at the average income level. $100 ain't much.

    This means that if, say someone has $200k saved and they're asking whether that's enough in terms of FIRE risk, it makes a BIG difference whether they could easily make $350/month or not. That's essentially a 50% difference in FIRE income.

    So as it is, I find making a little extra (a couple of hundred) easy. (But I find making $1000+ hard <= real effort required at my level. For instance, I currently make that much selling the ERE book, but if it stopped selling completely and I had to write another one or find some replacement hobby that made $1000+, that would require real effort. A fun $30/hour job (editing, coaching, para-something... ) would, after taxes, also require 40 hours/month which might be enough to cross the not-fun-anymore barrier. On the other hand, those who are able to and like fixing motorcycles or cars or houses can easily turn out a thousand on average) This suggests I've saved way too much because to some extent I almost didn't have to save anything. Conversely, I also recognize that some hobbies are either 1) incapable of monetization; 2) monetization may be explicitly avoided (because making money on it sometimes ruins a hobby(*). In such cases, it suggests that a larger financial margin of safety is needed.

    (*) In this regard I think there are two issues. 1) If increasing competence is the main motivation (it is for me), then being paid is a validation of one's skill. 2) Full-time dependence is almost surely not a good thing. Anything fun ceases being fun if one does do it and needs to do it to excess.

    Posted 1 year ago #
22. 

    Surio
    

    Sorcerer
    Joined: Dec '10
    Posts: 601

    It was more spurred by the recent questions on when to quit + budgets that are 3x mine that seemed to lean towards the conventional financial/consumer side, that is, quantitatively different but not qualitatively so. This suggested to me more of an early-early retirement with just the retirement date changing than a fundamental change.

    Very pertinent observation. I am confronting this challenge personally for some time. I was reminded of a certain article from JD Roth's blog from ages ago (2010!):

    http://www.getrichslowly.org/blog/2010/06/25/living-on-a-lot-less/

    Parts of the article also explore the same thinking you placed there. Overall, it is not too great an article, but the reminiscences of the experience and the accompanying (brief) soul-searching mirrors your point. But, fear not. The article then wanders on to opportunity cost discussions where not warranted, and finally ends up being typical a GRS article for typical GRS readers. It lost me about half-way. ;-)

    But it was the first half that made me ponder, and it is the first half that is relevant to your observation.

    "The practical reason I'm asking is that it has bearing on the "when is enough"-question."

    Posted 1 year ago #
23. 

    Surio
    

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    Joined: Dec '10
    Posts: 601

    
    

    Posted 1 year ago #
24. 

    Cashflow
    

    Apprentice
    Joined: Aug '10
    Posts: 97

    The "when is enough" question starts with one's expenses. The ERE lifestyle cuts expenses to a bare minimum, but each person's definition of "bare minimum" is different. I think of this as the lifestyle decision (i.e., there is no right way or wrong way to live one's life -- there are just individual choices we all get to make).

    Once the lifestyle and its associated expenses are determined, the question then becomes how is one going to earn enough passive income to meet these expenses. I've discovered that there are no guarantees in life when it comes to generating passive income.

    Based on either personal experience or stories I've heard from others, rents from income property can decline, profits from running a business can decline, royalties from book sales can decline, dividends from stocks can decline, interest from bonds can decline, and so forth. One has to be nimble with one's methods of generating passive income because there are no sure things in life.

    One way to characterize lifestyle expenses is to break them into categories such as needs, wants, likes, and wishes (and I realize the ERE diehard only has needs and no wants, likes, or wishes). Then make sure there is a high probability of enough core passive income to cover the needs, so the MOS overflow income is available for the wants, likes, and wishes (for those who do have wants, likes, and wishes).

    A good video that discusses these expense categories and various maintream-based strategies (i.e., using financial capital rather than human capital) for covering them is from a recent episode of the money show Wealthtrack: http://www.youtube.com/watch?v=nZhOSZZdAys

    Posted 1 year ago #
25. 

    palmera
    

    Journeyman
    Joined: Aug '11
    Posts: 270

    "I've posited that if one is serious about developing multiple skills, making extra money is almost inevitable."

    You are absolutely correct in this assumption. One of my passions is writing. In the past four months, I've had gained 2 steady freelance writing gigs without even trying, I was approached out of the blue. I've been writing my whole life and in the past year, wrote for free for numerous publications and my day job requires a lot of writing as well.

    Another one of my passions is socializing and alcohol: local craft beers, wines, cocktails...so yeah, one phone call and no interview later, I found a great bar job that I talk about often.

    As I mentioned in the other thread, I want to combine these two passions again into a couple ebooks because having to get out of my bed/off the couch/put down that book just to make money is starting to get kind of tedious ;)

    Posted 1 year ago #
26. 

    Dragline
    

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    Posts: 964

    That's great, Palmera. And tends to confirm the old adage that "we become what we think about."

    Posted 1 year ago #
27. 

    tac
    

    Apprentice
    Joined: Mar '11
    Posts: 79

    I don't know if I would go so far as "inevitable" but I don't think it is difficult to bring in a few extra hundred a month. For most of my adult life, I have always had some sort of side income that brings in around that much. Most of these side jobs have been doing things that I do genuinely enjoy (maybe not quite so much that I would do them for free, but enough that I would probably still be doing them at SOME level regardless of income potential), so I can't see that I would ditch them when I achieve FI. For the kinds of people who are going to aggressively pursue FI, I think it is likely that non-investment income will not drop to zero once FI is reached, because the kind of person who does that is also the kind of person who is unlikely to just sit home and veg out in front of the TV for a few hours.

    Posted 1 year ago #
28. 

    before45
    

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    Joined: Mar '12
    Posts: 65

    I don't consider myself unintelligent or skill-less, but I have never had a side job fall into my lap that I remember. So I am doing my ERE planning assuming no extra income. But "when is enough" is probably more a question of temperament and how much you hate your current job. Making a few hundred a month should be doable for most people with a little hustling--clean a couple friends' houses, for instance (if they're not ERE!). But if you'd need more than that to be able to "retire," I think you better have a real plan and know your market.

    Posted 1 year ago #

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