Want to Choose-Your-Own-Adventure to Flexbile Fire? Well today is your lucky day! That’s exactly the game we are playing! Sign up below and I’ll email you your own printer friendly game board right now! Did you get it? Ok, I’ll wait.
There are 6 Steps to Choose-Your-Own-Adventure to Flexible Fire.
If you want to play this Choose-Your-Own-Adventure, it’s essential you choose what kind of lifestyle you want (Step 1) starting with your ideal day/week/year.
Step 2 in the game is knowing your expenses. That’s why expense tracking is SO important. Even if you don’t want to budget (a plan for your money), you still need to know where it’s going. Here are my top three recommendations for tracking (most hands off to most labor intensive)
Personal Capital: It’s free to sign up, and they will link to your accounts and help track all your spending. It’s popular because it’s good!
Tiller: Tiller is for those who love themselves some spreadsheets! It also links to your accounts and imports purchases, but you then sort the purchases by category in a nifty spreadsheet.
Good Budget App: This app has a free version and it the most hands on. You will import each expense yourself into your computer or phone. It’s the digital version of pen and paper, and you need to be diligent.
I always say: Use whichever one you will use! As long as it’s accurate, you have the numbers you will need. Plus the longer you track your expenses, the more confident you will feel about what your fixed, comfortable and cushion expenses are.
Fixed expenses (monthly nut)
The first thing you need to figure out is your baseline expenses. Those bills you have to pay each month to live, no matter what. If you lost your job, you would still pay for these things while job hunting.
In upcoming guest posts, some people have done really cool and different things to help reduce those fixed expenses. Low expenses helps them start living their ideal life much sooner!
These are the expenses you could cut to the bone if you had to, but it’s nicer to have them! For example, we don’t really need $150 a month in fun money. If we bought all our clothes used, never went out for coffee or didn’t buy books (gasp! The horror!!!), we could get buy on $25 a month. But if we can figure out a way to afford that $150, we will!
Same with food. I have an arsenal of $1 meals, and we could only eat those. We could probably pare our food bill down to $400-$500. But spending $600-$700 a month is just more comfortable. So in the game, our fixed food expense would be $500 +$200 comfortable.
Cushion expenses (if you have the cash, it would be nice)
Cushion expenses are things that you don’t need and would be fine without……but…..if you happened to have the money; it would be fun to spend it on this. It might be a big international vacation each year, a lake house, being a major donor of a local non-profit, or classic car. Some people build cushion expenses into their Passive Income, but more often these come out of a “good year” on the Passion Income.
For example we are on a 10 week road trip right now. The fixed cost for it is $2500, which we are earning by renting our house out. We will add about $1000 in comfortable expenses (extra attractions and eating out). And maybe up to $2000-$3000 in cushion expenses if we go to Disney. It would be a great trip without Disney, but if we have the extra money, it might be fun to add.
Choose your percentage
At step 3 in the Choose-Your-Own-Adventure game, you get to pick what percentage you ideally would like to come from Passive or Passion Income to cover each of your expense categories.
Maybe right now, 100% of your income comes from a good ole’ J-O-B, and one you don’t particularly care for at that! But by knowing where you want to end up, you can plan for the next right steps.
If you know that you would love 75% of your fixed expenses to be covered by Passive Income and the Passion Income covering the rest, you can start to take those first few steps to make that happen.
A few examples to wet your whistle:
Passive covers 100% of your fixed expenses, Passion covers comfort, and there is no cushion yet.
Passive covers 25% of your fixed expenses, Passion covers 25% of fixed expenses and your J-O-B covers the rest plus some comfort expenses.
Or my situation: Passive covers 100% of fixed and comfort. Passion covers extra giving and cushion expenses.
There are a 1000 different ways this can look. The goal is to know where you are and where you want to end up and start taking steps in that direction! In future posts, I hope to highlight how a few friends are piecing together their Passion and Passive Income to create the life they love, now and for the future!
Pick a few:
Remember the old school video game, Legend of Zelda? As you went along the journey, you picked up things you needed: tools, gems, medicine, sage advice from kindly strangers. Step 4 and Step 5 in the game is kind of like that.
As you go along this journey, if you play the game, you will get to pick a few things up. We can’t get everything we need standing at the starting line. But it’s good to have an idea of what you are hoping to find.
What is Passion Income?
We talked about this more in depth in the last post, Flexible FIRE. So check that out if you missed it, but here is the info-graphic recap!
There is a huge misconception that you either have to work a 9-5 job OR become an entrepreneur and set out on your own to build something out of thin air. That couldn’t be further from the truth! No wonder so many people are scared to create some Passion Income! Creating stuff out of thin air often takes years of work, and, seemingly, a bit of magic.
Thankfully there are so many steps in between! And you don’t have to just pick one! If in your ideal week you work about 30 hours a week, you can mix and match your hours. You can work as a part-time employee at your favorite local business for 10 hours, spend ten as a freelancer for an entrepreneur, and do 10 of your own thing. You can combine 3-8 options to fit your lifestyle.
Types of Passion Income
Full time on site/ set schedule: This is what most jobs are. You show up 50 weeks a year to a place of business and do your work on a set schedule.
Full time remote: This is becoming much more common and often can be negotiated for employees with a good work history. You might have somewhat flexible hours or be able to work while you travel.
You can also build your own business that is full time remote with fixed or flexible hours.
Set schedule part-time: You might work a set schedule but part-time. Maybe you work weekends at the Farmers market helping a local greenhouse sell produce. Or you work at the library every morning.
Flexible part-time: Maybe you fill in and work odd shifts for a business. This can be great because it’s easier to take time off or flex when other types of work need you.
Freelancer: There are many flavors of freelancers. Some do one-off jobs for people. Some have ongoing work for a company. Some work nearly full time for others.
Co-Creators/ Business partners: This is a great option for people who love to own a business but don’t want to do it entirely alone. You take the elements that are your Passion work, and the other people do the things in their skill set.
Full Entrepreneur: You go into the world and create something out of nothing! It’s amazing and terrifying, slow going and full of risk.
The great thing is that you don’t have to be just one of these! You could be full entrepreneur 10 hours a week, freelance 10 hours a week and work a flexible part-time job for 10 hours.
I love the mix! Because each has its benefits and challenges and when one feels like a drag, another stream of Passion Income is generally doing great! They balance each other out.
Passive income is also diverse!
Again, there are so many types of passive income. And if happiness is found in groups, passive income is no exception! Finding two or more ways to create some passive income creates stability and security. Depending on what percentage of your fixed expense and extra expenses you want it to cover before you hit real retirement age, you can pick the options that will get you there.
And remember, not everything is forever. You might only want to rent a room in your 20’s or 30’s. In your 50’s maybe you are tired of being a landlord. You can pick things that work in your current season of life while realizing that things will change over time.
What is Passive Income?
Passive income is essentially where you have done a lot of work up front, and now that work pays you a disproportionate amount of income for the time it requires. Stocks are a great example. You did a ton of work earning money to buy the stocks, and now they produce a return that can give you a safe 4% withdrawal each year with just a few hours of effort. Rentals are similar. They take a lot of cash and work upfront but then pay out at a much higher rate than the time put into them. It might take 2-3 hours a month to manage two rentals but create $1000 in income.
It could also be something you create once but can mass produce, like Esty printables, a book, cd, art or information product. It also includes work that still takes time but the income is extremely disproportionate to your normal hourly rate. For example, I created two courses. They were a ton of work upfront, and still, take some time to maintain, but now the income they generate is disproportionate to my normal hourly rate.
Passive income ideas
To make it easy, I’ll group them by type.
Owning rentals (single family, apartment, condo)
Renting out a room (nightly on Air BnB or monthly)
Renting out your whole home (while you travel)
Adding an apartment to your home
Renting out an RV or Camper
Renting out space in your yard/driveway to campers
Renting out part of your garage or home as storage space
Stocks, CD’s, Bonds
Privately loaning hard money for real estate investments (10% average return)
Regular real estate investing (5-8% return)
Silent partner in business or hands-off owner
Selling scaleable items: Etsy, graphics, art, music, books, information products
An established business that creates disproportionate income to ongoing effort
Other (nice to have) options:
Pensions, Social Security
You can slowly start to build up a few types of passive income, for now and the future. Passive income can help take the pressure off your passion income and add stability. In the chart example above, three streams of passive income each created $12,500, $12,500 and $3,000 a year, covering over 50% of the budget. When you have a few streams of Passion + Passive Income, they don’t have to be huge to make a big difference!
Biggest Mistake I see people make in this journey!
This comes up almost every time in my mentoring so I made a little video for you all! (Set in the lovely Joshua Tree National Park, no less!)
The biggest mistake I see people make is thinking “Yeah, well that would be nice. Maybe I’ll do something like that someday, but now’s not a good time.”
Now might not be a good time to go all in on an idea.
But it’s a great time to take one tiny step in the right direction.
It’s a great time to learn a bit more about an area you are interested in. It’s a great time to add one more skill to your tool belt. Or build a new relationship with people doing similar things.
You just need to start. Not everything is the right idea or direction. But you only find the right path for you by getting going!
And a shout out to the ever amazing Audra (part time, flexible, remote freelancer) who earns some passion income creating these awesome watercolor designs for me!