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Financial Freedom, Financial Planning, Investment, Money Habits, Retirement Planning

Money Makes Money: January 2017 Non-W2 Income Report

Last month, I started sharing our non-W2 monthly incomes. In that article, I also shared why we’re doing this on the blog. Yesterday, my husband and I summed our financial numbers. Below is a chart listing our non-W2 income sources and totals for January 2017.

January 2017 non-w2 income

As anticipated in last month’s report, we expected January’s numbers to be much lower compared to those of December 2016.

From my understanding, most early retirees in the Financial Independence and Retiring Early (FIRE) community fall in one of two groups when it comes to funding their early retirement lifestyles:

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Financial Independence, Financial Journey, Financial Planning, Lifestyle, Money Habits, Money Psychology, Purchase Decisions

Three Ways to Enjoy Today While Building and Maintaining a High Savings Rate

On the Path to Financial Independence

As you work toward your financial goals, does it sometimes seem like you’re sacrificing too much today just so you can have a better life tomorrow?

If that’s the case for you, you might be having mixed feelings. I know I’m too familiar with these feelings. A bunch of high days were mixed in with a bunch of low days. There were times when I wished my days away as I eagerly waited to taste the life of having reached millionaire status. During those periods of time, I was not living in or enjoying the present moment. I did not want to spend any money other than the absolute necessary. All I focused on was reaching the million-dollars goal. In that process, I neglected myself in many ways. I went through emotional struggles and have shed lots of tears.

high savings rate

The path to financial independence is not an easy one. There’s no shortcut. Even those who are very disciplined and hardcore (with high savings rates) still take anywhere from 7 to 20 years to get there.

For some of us, we’re okay taking our time. A 20-year horizon is not so bad. For some of us, even a two-year time frame is almost unbearable (and each of us have our own reasons). If you’re in the latter group, sometimes, it’s easy to get into the danger zone of depriving ourselves when we think we’re only being frugal (the gray area between being frugal and feeling self-deprived can be blurry).

When prolonged self-deprivation is left unnoticed, we could be putting our health and our financial plans in jeopardy. Not only is self-deprivation unhealthy, this behavior can lead to the resentment of oneself and others who are in the same team as you (such as your spouse and/or children).

Recently, I caught myself going down the self-deprivation slope. My emotions were strong. In this article, I’m sharing my story. I also recommend three ways for you to stay on course to reach your savings goal without going into self-deprivation mode.

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Financial Freedom, Financial Planning, Investment, Money Habits, Retirement Planning

December 2016 Non-W2 Income Report

We’re sharing our non-W2 incomes on the blog not to brag. We want to show you what is financially possible. If you’ve read some of my previous articles (such here, here, here and here), you know that both my husband and I have been saving aggressively over the past decade. Our savings rate ranged from 55% to 75%. This was true even when our combined income was below $100,000. The total passive income number you’ll be seeing here is the result of a decade of financial discipline and strategic investing. We took no shortcuts nor did we stumble upon great luck.

december 2016 income report

In our household, our biggest financial goal currently is to build up our non-W2 income. Sometime in the near future, my husband and I will want to leave our W-2 employment. At that time, we want our annual non-W2 income to cover our annual expenses. Ideally, we prefer 95% to 100% of expenses will be covered by our passive income sources (such as from dividends and interest payments from stocks and bonds and income from rental properties) and anything beyond that would be a bonus/extra cushion. We are certainly not there yet; we currently have enough passive income to cover our basic expenses. This is the reason we’re looking into rental properties to fill the gap (click here to read my rental property investing series where I share our journey on this new adventure).

Part of financial planning is financial tracking.

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Financial Planning, Real Estate Investing

Cash on Cash Return on Investment

When analyzing real estate deals, one of your biggest concerns should be the rate of return (also known as return on investment or ROI). What is the percentage return on the capital invested? One metric many real estate investors like to use is Cash on Cash Return on Investment (CoCRoI). It is the amount of cash flow you receive relative to the amount of money you pay out-of-pocket for the property.

CoCRoI = Pretax Annual Cash Flow / Cash Out-of-Pocket

cash on cash return on investment

If you have had an interest savings account and/or investing in the stock market (such as holding dividend yielding stocks and interest yielding bonds), you might be familiar with CoCRoI. For instance, if you invest $1,000 in a stock that pays out $30 in annual dividends, your CoCRoI on that $1,000 is 3% of your capital invested. Likewise, if you pay $1,000 cash out-of-pocket to acquire a property that generates $50 in cash flow annually, your CoCRoI yield is 5%.

Being able to draw this parallel across different investments (or asset classes) is pretty cool, right? You can easily compare rates of return on rental property investing to lending and investing in the stock market. Knowing that the stock market historically returns 7% to 8% annually, is a Cash on Cash Return yield of 6% on an investment property a good return (keep in mind that different asset classes have different levels of risk and CoCRoI doesn’t account for relative risk factors)? As a newbie real estate investor (but a somewhat seasoned stock market investor), I certainly appreciate this familiarity.

Factors that Can Influence the Cash on Cash Return Yield

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Financial Planning, Investment, Real Estate Investing

Real Estate Niches and Strategies

Year 2016 was a year full of financial learning for both my husband and I. Early this year, we learned the importance of financial planning (which I talked about in this article). Towards the close of the year, we learned about the importance of having a business plan when investing in real estate. Part of getting started on real estate investing is to first decide on a niche (or two) to get into and which strategy to use to build wealth.

real estate niches and strategies

Real Estate Niches

When I started researching on real estate investing, I was only interested in single family homes. I was aware of other investors buying up small and large apartments, commercial real estates and notes (the buying and selling of paper mortgages). However, my husband and I never paid much attention to those kinds of real estate investing. These types are only for investors who have lots of money. Even if we have the cash or leverage (securing loans), my husband and I aren’t interested in venturing into that kind of large scale risks or work. We’re looking for something much smaller in scale and more manageable. As I wrote in the previous article, we aren’t looking to become multimillionaires through real estate investing. We are interested in portfolio diversification and additional stable monthly cash flow.

Small Multifamily Properties and Their Appeal To Us

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