Where step 33 described the features, (dis)advantages, and possibilities for change of an earned income, we are now going to look at profit income. A profit income is the money you get when you have a company (which can be anything from an Etsy shop where you sell handmade things to a multinational company) and are able to sell your products or services above the cost price thereby taking (some of) the profits as earnings.
Many people dream about having their own company, and although this can indeed be a lucrative project, being an entrepreneur also requires a lot of hard work, and often at least a few years before a company starts making a profit. It furthermore involves a lot of new skills, quite a bit of risk and a lot of perseverance, so the life of an entrepreneur isn’t always as rosy and making a profit income isn’t always as straight forward as it might seem. (You can take my work for this, I have some experience..). Continue reading “Step 34: Income stream 2: Profit Income”→
In step 32 we looked at a quick overview of the 7 different income streams one can build, and in these next 7 steps we are going to look at each income stream in turn, to analyze possibilities of (further) developing each possible source of income. You shouldn’t however feel that you need to take action in all 7 areas, instead the main purpose is to make you aware of each income source so you can decide what works best for you.
Let’s start with the first income stream, which is your earned income. Most people get this from working for somebody else, although if you are an entrepreneur you might also receive a regular wage from your own company if you are taking a salary.
A key feature of earned income is generally that you are paid for your time, be that time you spend in the office, working from home, at conferences, at clients’ offices or wherever your job requires you to be. Generally speaking the more you work, the more you get paid: if you go from part-time to fulltime you get paid more, if you work extra hours you get paid more and by taking on a management role which might require more time (as well as extra responsibilities, experience and whatever else), you also get paid more. Continue reading “Step 33: Income stream 1: Earned Income”→
Up until now we have made great progress in the areas of our savings, debt and reducing our spending in order to increase our cashflow on our way to financial independence by putting extra money towards a secure financial future. We are now going to move away from these areas for a little while and start with a new theme as there is another way to increase your cash flow: by increasing your income.
The vast majority of people see income as the money that they get from their job, and we have already touched upon income increases such as a bonus or pay rise in previous steps as a way to increase your money. Whilst income from a job is normally not only a very decent provider of money as well as a financially secure way to guarantee a steady and satisfactory income, it doesn’t have to be your only way of bringing in money. Continue reading “Step 32: Multiple income streams”→
No matter at what stage in your life you are, you probably feel that you don’t have enough money to live the lifestyle you truly aspire, let alone to behave (even more) sensibly with your money. When planning out, or even just thinking about, putting money aside to save, invest or pay off a debt, it is tempting to justify holding off making that sacrifice until you…. (insert excuse here).
Until you earn more? Until you’ve finished your post-grad course? Until you are married? Until you have bought a house? Until your children are independent? You can come up with a billion reasons here, many of them probably valid in their own way, so let’s look at some of the most common excuses, so you can appreciate that with every change in your life, your spending patterns will most likely also change.
In step 28 we’ve looked at how to put away extra money that you might get at a certain moment in time, such as a bonus or as a gift, in order to find a balance between rewarding yourself in the moment, whilst at the same time making the most of the extra payment in the long-term by saving a part of it.
From now on, you are going to do exactly the same when you get a pay rise. In this case you should interpret “pay rise” in a broad sense and think of it of an increase in your monthly cashflow, which can come about for many different reasons. This could indeed be a higher pay from your employer, but it could also be a little side income you might be getting from doing extra work, or even a lower mortgage pay or some other favourable reduction in your expenses on a structural basis, resulting in a little extra money left over at the end of each month. Continue reading “Step 30: Invest 50% of a payrise”→
Maybe you had a coins jar at some point in the past, possibly when you were a child, and like me you might have looked at it in anticipation every time you put in a coin, hoping that single penny would somehow magically fill up the jar to the top… or at least get you to your savings goal in order to buy that new Nintendo game… I at least had one as a child and definitely enjoyed the process of saving up and seeing my little nest egg grow. But despite reading about coins jars on many money and finance blogs, I never started this in my adult life, as I wasn’t convinced or indeed saw the point of it, as I didn’t think those coins would ever get me anywhere near my savings targets with the amount of change I’d put in.
That was until recently when I read about this concept again in MJ DeMarco’s book “The millionaire Fastlane”. DeMarco agrees that a coins jar, or a change bucket as he calls it, won’t actually make you rich and definitely won’t make you a millionaire. But he does express two advantages that having a coins jar can give: Continue reading “Step 29: Start a coins jar”→
As promised, the next few steps will focus on how to speed up your savings process and reach your savings target faster with some simple ideas. Although the tips and habits will help you to build your living fund faster, they are not meant to be just one-off ideas. If applied over time, they will help you to keep progressing towards new financial targets you have set yourself, even if they have since become other or bigger goals.
The first one of the tips – Keep 50% of any extra money – is an easy one to understand, yet as often is the case when it comes to money, difficult to implement, as it requires you to resist the temptation of instant gratification and instead needs you to focus on the long-term advantages of self-control. Continue reading “Step 28: Keep 50% of any extra money”→
Once you have built your emergency fund of $1000 (or the equivalent in yourn own currency) for unexpected or emergency expenses, you are going to continue with the new savings goal in line with our mission to reaching financial independence. In this step we look at the ins and outs of a 3 months living fund and you are going to start working towards putting together this fund.
The rationale behind a 3 months living fund is that it would cover your basic living expenses if for whatever reason you no longer receive an income. This might be because you lose your job, are unable to work or voluntarily decide to take time out of work, for example to care for an elderly parent or sick relative or because you want to take time to focus on something else. It a safety net that ties you over for at least three months that will at least cover your basic living expenses for some months, leaving you time to find a new job, an alternative income or just allowing you to take those three months off before returning back to work. Continue reading “Step 27: Build a 3 months living fund”→
Now that you know all about the power of interest over time, are building (or have built) your emergency fund and have started paying down your debt, we are moving on to a new area of your finances: your savings. In the next few steps we will look at your savings in greater detail, but the first step for today is to open a (new) savings account.
Looking at the title and this introduction you might think can skip this step as you maybe already have a savings account, which you are of course free to do. But opening a new account starts with investigating what’s on the market and I recommend you at least read through this step and potentially still consider opening a new account, as it never kills to have more than one savings account, especially if they don’t involve any costs, and because it can be helpful to have different accounts allocated to different savings goals. Apart from that, it is also a good habit to compare saving accounts from time to time, to make sure you are still getting the best deal. And if you find out you aren’t getting the best conditions possible, it is a good moment to consider changing your savings money to a new account. Continue reading “Step 26: Open a new savings account”→
In step 18 we looked at starting a weekly finance review and what to focus on during that weekly half an hour, to ensure you stay on track for that month’s spending, bills and goals.
Today we are going to take this one step further, by starting a monthly finance review, in addition to your weekly review. Whereas the weekly review is incredibly useful to ensure you achieve your monthly goals, the monthly review helps you to achieve your longer term goals that you set out to achieve, such as becoming debt free, getting to a certain net worth or saving a specific amount of money. It is the moment to plan and look ahead a little further and to readjust your goals and spending patterns.
During most months you can probably combine every fourth weekly review with your monthly review, although for your monthly analysis you will need to set aside more time, as you are analysing the entire past month and also looking further ahead. I recommend scheduling in roughly 2 hours every month to complete this step. Continue reading “Step 25: Start a Monthly Finance Review”→