As part of our financial independence goal, I kind of challenged myself to think more and more about how to earn more streams of passive and portfolio income so in the case that our earned income dries up, we’d have something to fall back on. The more I thought about it, the more it made sense, but the only problem was executing it. So, in order to keep me accountable for our goal of becoming truly Financially Independent, and in the event that we won’t have earned income, here’s a challenge: a money challenge earning passive income for basic needs.
Earning Passive Income for Basic Needs
If you’re frugal and plan to retire early as us, you use your money on what makes you happy. Since every person has their own ‘needs’, this article may not cater to everyone, but hopefully you derive some ideas based on our kooky ideas.
Housing/Shelter/Utilities: Basic Necessity #1
Rent is one of the most expensive expenses that you’ll end up paying monthly. In our case, here’s our plan to hack it:
- We bought a two bedroom townhouse at a 3% 15 year mortgage, which was a great rate. We pay
$1,007$953 monthly for this. (We got a new letter saying that the bank overestimated our escrow so we’re getting a lower rate starting April 1st 2017. Yay!)
- We pay $150 in HOA fees monthly, which is included in the $953 rate.
- We pay around $180 monthly for utilities: sewer, water, and electricity.
Total Housing Expense: $
To offset some of these expenses, we rent out a spare bedroom in our house on AirBnB. We try not to use the air conditioning whenever possible (thank goodness for winters), but the summers are absolutely brutal here in Florida, and well, we also do have AirBnB guests so we’ve got to keep them comfortable (the cost of doing business).
Total Housing income: $800/month (approximately)
Net Housing Expense: $
Because we rented out our spare bedroom, we managed to lower our housing expense by around $800/month! This includes additional supplies like toilet paper, cleaning, utilities that will be consumed and the like. The final housing number approximately represents the cost of our HOA + homeowner’s insurance + utilities for the month, which is great!
We’re planning to earn the remaining $483/month from a combination of our other rental income (currently cash flowing at around $200/month), so we’ll need to earn $283/month more on passive income, but we’re using the spare money to pay for additional principal because we want to get rid of this mortgage as soon as we can.
We have a few thousand sitting in our business bank account to help pay for capital expenditures if something breaks in our houses (our main one and the rental), and we also have a few hundred earning 5% interest yearly as emergency funds for this purpose too. We’ll either use a bit of the credit union funds & the money from the 5% savings account to buy another rental property if the numbers work. These types of income and expenses are a bit harder to predict so we’ll have to exclude that for now.
Examples of capital expenditures include annual AC maintenance, blinds that break, carpet cleaning, painting, water heater repair, A/C repair: you get the drift.
Food: Basic Necessity # 2
We buy and cook our own food (mostly) from grocery stores. Here’s how we try to lower our costs:
- Buy in bulk (Costco) – at times, but not all the time.
- Aldi has great deals (the best prices on food but they don’t carry everything)
- Winn-Dixie and Publix BOGOs (Buy One Get One on non-perishables or things we’ll end up eating quickly)
Total Food Expense: Approximately $200-$300/month
We occasionally use coupons to lower the bill, but other than that, we don’t have any other method to get our food bill to zero. Maybe if we utilize cash back cards, but we can only deduct $25 or so every few months. So, for this category, we’re still working on getting it as cheap (or free) as possible without relying on dividend income and we’re still paying for our groceries using our earned income.
Currently a work in progress.
Gas: Basic Necessity #3
Gas is essential for us who go to a 9-6 everyday. In a place like Jacksonville, Florida (where we live), a car is essential for us to get to work. While Anti-Mustachian of us, we technically can bike to work (we live 15+ minutes away by bike), if I knew how to ride a bike. The downside of biking is that summers in Florida are long and very, very hot and unpredictable. Our summers last from as early as March/April until September/October. In the peak summer months of June-August, we get thunderstorms almost everyday in the afternoon.
So, since we need to earn some income, we’ve got to use gas… and since we also love to travel, we need gas to get a car to take us to the airport/the port/or another destination.
Total Gas Expense: $100/month (approximately)
To get ‘free’ or discounted gas, we’ll use the following techniques:
- Use FuelPerks or Fuel Rewards card to get 5 cents or more for every gallon of gas we get. We get 5 cents off per gallon whenever we buy $50 or more of groceries from Winn-Dixie. For Fuel Rewards, we get 5 cents a gallon whenever we fill up our tank (more than 8 gallons) from Shell.
- Buy discounted gift cards online or from a store. Winn-Dixie has great deals where you can get 2x fuel perks for certain purchases (10 cents for every $50 in gift cards bought). Stack that with a category bonus from Discover, where they give 5 points per dollar spend in grocery stores (5 points = 5 cents off every dollar, so $50 = 25 cents in cash back). The total savings will be 35 cents for every gallon in this scenario.
Total Gas Savings: Depends. Sometimes we can get gas for cheap, or we can opt to redeem our Discover points for Shell Gift Cards (not ideal though as I can get something else from the portal to resell and earn money for it). But the point is, we don’t pay full price for gas except if we buy gas from non-Shell stations (which is very rare, but it does happen).
Basic Necessity #4: Clothing/Shoes, etc
While we don’t buy a lot of clothing per se, it’s got to be in the budget because we’ve got to have clothing to step out of the house.
Let’s budget around $20/month for clothing expenses.
Here’s what we do to lower the expenses on this bracket:
- Wait for Christmas or a birthday – we normally get clothes as presents.
- Go to outlet stores – Peter prefers to buy during holiday weekends so these stores offer discounts on top of already discounted products.
- Go to Bealls/Kohls/Ross/Marshalls/TJ Maxx – because they are also discounted on top of retail price. So, in essence – never pay retail for clothes, or if you do, use coupons.
- Goodwill – mostly for me. I love thrift stores and mostly go to a more expensive area (like Sarasota) and I wait for their 50% off deals. I can get designer stuff for cheap (and get a bigger discount too!)
We mostly pay for these things in earned income (I was about to say cash but we don’t use cash, we use credit cards to earn points). However, I can opt to use gift cards from Discover Rewards to use for Old Navy. That or use some of the money I earned from buying/selling gift cards to offset my costs. Peter’s will have to be taken from his earned income.
We try to become more minimalist when it comes to clothes, but unfortunately I’m still guilty of having a full closet, while Peter is more disciplined in this area. Hopefully I’ll improve on this 🙂
Basic Necessity #5: Entertainment
I absolutely hate being bored, so we have a whole line item in the budget strictly for entertainment purposes: movies, books, TV, shows, and the like.
Major entertainment expenses are:
- Live theatre shows – We love live theater and definitely go to one at least more than four times a year. We use a local website called Local Flavor to get tickets to a local dinner/live show place called Alhambra. That’s $31 per person for a three-course lunch/dinner and a two hour theater show. We also go to Broadway productions in case they come to Jacksonville and if they’re interesting.
- Netflix/Amazon Prime – Not sure if we’re going to renew Amazon Prime yet but we pay $10.81 per month for Netflix. It’s being charged automatically to our Better Balance BoA card, which gives us $30/quarter when we pay our bill in full. Total for 3 months of Netflix: ~$3! That’s like $1 a month!
- Movies/Books – We go to the library once a week on average. We can get semi-new movies on DVD without paying $6 per person + gas to drive there. We just need to pay for electricity that we consume for the two hours we watch the film. Score. Books are also free c/o the library. We do buy books every now and again, but mostly as gifts or as reference materials that we otherwise wouldn’t get from the library.
- Internet – Technically part of our business expense, but it also provides us with entertainment so we’ll bulk it in here. We have to negotiate with Comcast every year or so to get our bill lower. These companies are sneaky – they say that the $40/month you were paying is just an introductory fee and jack the price up to $80/month after the first year. You’ll have to stay on top of it and negotiate! Don’t be lazy, save your money and invest it!
Total Entertainment Expense: Depends. We try to get these as cheap as possible to get a lot more deals but for now we are using our earned income to pay for these.
Travel: Basic Necessity #6
Travel is one of our most expensive ‘basic necessities’. Sure, it may not be a necessity for most people, but it is part of our lifestyle and our overall goal of traveling full time as soon as we reach FI. It is a bit of an expensive necessity, wherein we allocate nearly $10,000/year on travel.
We’re leaving this one very short because as you can see in most of our travel posts, we do it quite often (averaging one destination a month this 2017, which is a considerable increase compared to when I first started backpacking, even with a full time job in 2011!)
This is the main reason why we want to be Financially Independent – to travel the world. We won’t be able to reach it when we’re in our early 30s because well, that’s our current age bracket right now and we’re nowhere near our retirement number, but soon enough, soon enough.
*Soon meaning 12-15 years from now. We still have to pay off two mortgages and we’re still in the income accumulation phase.
Basic Necessity #7: Mobile Phone Bills
It’s funny how technology just plays into your life. When I was growing up, mobile phones weren’t a necessity and now they are. Every month I pay around an average of $25 (including taxes and fees) using Google Fi. I used to be a T-mobile subscriber, when I used to pay around $42.80 monthly for internet, phone and text.
Of course I had to buy a new Google Fi-compatible phone instead of my old one, but I figure it will pay for itself in the long run since I’m saving nearly half of what I was paying when I was with T-Mobile.
Basic Necessity # 8: Pets
All right, maybe not a basic necessity for most people but we are pet lovers and love to take care of animals.
We have a betta fish and we provide a few things for our dog Rosie, who now lives full time with her grandparents in Sarasota, Florida.
These two pets don’t cost much. Approximately $10/month. Mr. Fish (our betta) eats so little of the $7.42 fish food he has that it will last for at least 6-12 months. Rosie is a bit more expensive on the other hand, with us sending her medicine every 3-6 months (around $80+ for everything).
Total pet costs: Approximately $20/month.
Some people might say that pets are not really cost effective since they are just an expense, but imagine the happiness they give you – that’s priceless for us!
Let’s put all the basic necessities together
Now that you’ve seen most of our ‘basic necessities’ as expenses, watch out for our next blog post and we’ll try to break down how we’re trying to earn as much money as we can in passive income. While that post won’t be dwelling exactly on how much we’re earning, we explain the streams of income that we currently have coming from there.
Thank you for sticking around, I know this post is a bit of a behemoth, and hopefully you guys can help keep us accountable in lowering our expenses to make our FI countdown a bit faster!