Will everybody in ERE always have more than one income source?

Ask your investment, budget, and other money related questions here
jacob
Site Admin
Posts: 15907
Joined: Fri Jun 28, 2013 8:38 pm
Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 77
Contact:

Post by jacob »

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.


Surio
Posts: 602
Joined: Sat Dec 25, 2010 11:58 am
Contact:

Post by Surio »


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/ ... -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."


Surio
Posts: 602
Joined: Sat Dec 25, 2010 11:58 am
Contact:

Post by Surio »




Cashflow
Posts: 97
Joined: Mon Aug 09, 2010 2:06 am

Post by Cashflow »

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


palmera
Posts: 267
Joined: Thu Aug 25, 2011 8:16 pm
Contact:

Post by palmera »

"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 ;)


Dragline
Posts: 4436
Joined: Wed Aug 24, 2011 1:50 am

Post by Dragline »

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


tac
Posts: 79
Joined: Tue Mar 15, 2011 5:54 am

Post by tac »

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.


before45
Posts: 80
Joined: Thu Mar 15, 2012 2:59 pm

Post by before45 »

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.


Post Reply