Side Jobs

garden-17This image has nothing to do with this post except that wordpress wouldn’t let me upload the image that I wanted to use but it would let me upload this one so it must be important for you to see it.

There are two ways to retire early: save more and spend less.

Thus far, I have been focusing a lot on the “SPEND LESS” side of things since that really helps both sides of the equation. If you spend less, you have more money to invest AND you simultaneously need LESS money to retire since you don’t spend as much. Pretty sweet deal.

Today, however, I’m going to look at the “SAVE MORE” side of things.

My role in our family unit is complex and layered. Since we live exclusively off of my husband’s income (hooray for the web development world) that frees me up to do the following things: manage the schedules of all three of us, take care of all the repairs on our home and rental properties, clean the house, landscape the yard (and, yes, I am actually in the process of completely transforming our copious amounts of grass into a beautifully landscaped sustainable yard!), remodel the kitchen (yep – I’m learning a lot and feel slightly bad ass for doing this by myself), care for the child when she is sick, home from school, on vacation, etc, volunteer for her school (because I’ve read those parenting books that say in order to be a good mom, you must volunteer in your child’s school…not that I care what they say…well, maybe just a bit), and run my own business. Whew. I got tired just writing all that, and I’m sure you tuned out about 12 lines back.

The point is that I am in a position where I get to pursue whatever I want without the pressure of bringing home a paycheck. I am also in a position where all the money that I bring in is *bonus* money! Woo Hoo!!!! Just think about it. A couple of thousand dollars a month that you can do whatever you want with. The thought is dizzying. So, what do I do with this *bonus* money you ask? Vacation in Hawaii? Purchase the newest apple produce? Go on a shopping spree?

I pay down our mortgage, of course. What a rush to see that principal amount drop by two grand! I actually get a little giddy just thinking about it.

Without the constraints of a full time job, I play a little game with myself: how can I bring in more money without sacrificing the quality of life for my family? How can I bring in more money in a way that is fulfilling and inspiring for me? Its a super fun game that I recommend everyone play even if you do currently have a full time job.

We are only limited by our imagination.

I currently have several sources of income which are both fulfilling for me and can be accomplished in between all that other stuff I listed earlier on that you tuned out.

  1. I occasionally do a photo shoot for a family or a wedding. I can be picky. I only work with people that I like who genuinely like my style of photography. I charge a living wage for my services, but, IMHO, I produce work worthy of that wage.
  2. In addition to photo shoots, I have written a book about “How To Photograph Your Child.” Now, I don’t make a ton from the sales of this book, but at this point, it is a passive income stream. I’ve got a second book in the works.
  3. I’ve recently started tutoring parents on how to use their DSLR to take better photos of their kid.

Every dollar I make goes directly into our mortgage. It is also money that we are not counting on so ultimately it shortens the amount of time that we have until retirement. This is how “SAVING MORE” can be used to get you to that retirement number sooner. Pick something that you love to do and turn it into a passive income stream.

 

 

Early Retirement vs Financial Independence

greenbelt-13Little Eivy is excited to be financially independent

I had reached out to an old friend from high school last week and topic of early retirement came up. He asked me questions about what we were doing and why we were doing it. He then mentioned that he really loved his job and wouldn’t want to retire early.

I realized that I had been using the terms, “early retirement” and “financial independence” interchangeably when really they are completely different ideas. When someone says early retirement, I picture a very passive person sitting on river bank fishing or maybe playing golf (ahhh – my vision of early retirement is being an old white man). This does not sound fun. To me.

As a photographer, I think I might have the best job in the world. I get capture real feelings and memories that will be treasured forever. My work will live on long past me and it is creative and challenging. Dream job! The trouble with a job – even a dream job – is that you HAVE to do it in order to pay the bills. And whenever you HAVE to do something, there is going to be a certain level of stress and resentment.

A little over a year ago, my dear sweet husband came to me and said, “honey, you are stressed out and working too much. Why don’t you stop taking on clients and focus on what it is about photography that you love?” And I did. I stopped taking on clients (and making money) and spent a year writing a book while taking pictures of whatever I wanted.

Removing the pressure of HAVING to work allowed me to fall in love with what I do more deeply than I thought possible.

At the end of the year, I realized that I wanted to start taking on clients once again – although less than before. I wanted to try to go into a completely different direction with photography; a direction that I would have been too afraid to pursue before because it is not what people traditionally want when they hire a photographer. Without the pressure of HAVING to make money, I was completely free to do what I wanted. And guess what?

I started making more money than ever before.

So, to bring this post back to the original topic, what I want in life is not to retire early from my job. It is to have the freedom to do whatever I want. That is the difference between early retirement and financial independence.

I have been able to experience the pure joy that comes from financial independence (in that I don’t personally have to bring in the money since Adam’s paycheck covers our expenses) and I want nothing more in the world than for Adam to have that as well.

More on the tax monster (or – if I can do it, anyone can)

disney-5Yes – I absolutely think that this is what a tax monster would look like if there was such a thing.

There were a few, “yea, buts…” after my post about doing my own taxes. Apparently one of the reasons that taxes are so hard is that each and every person is so different. There is no one size fits all when it comes to taxes.

Despite your worries that your tax situation is so challenging that you just couldn’t possibly do them yourself, I would like to argue that you can. Take back your power and make your own money choices. Use the complicated tax code to help you.

10 years ago, the extent of my tax knowledge was entering my W-2 on a form (and, boy, was I ever proud of this accomplishment). In contrast, this year I had just about the most complicated tax situation possible (OK – I’m sure that others have it worse): in addition to Adam’s W-2, I had my own business and Adam had his own side business both of which operated under the same LLC – each with its own profit and loss statement. We had interest income. We had dividend income. We had weird 1099-OID income from Prosper and Lending Club. Not to mention the two rental properties and a vacation rental. Phew. Its exhausting just reading that list. For each of those items, I had to research how to the taxes worked.

However, on the flip side, with each new google search I learned more and more about what I could do next year to reduce my taxes. Now, I am NOT talking about avoiding taxes. I honestly believe that taxes are necessary. I like driving on roads, sending my daughter to public school and living in a relative safe place. So I have no problem paying my fair share of taxes. The trick is knowing what your fair share actually is.

For example, I discovered that the Prosper and Lending Club 1099-OID income is taxed at a much higher rate than the long term capital gains that we will be making from our index funds when we sell them. It therefore makes sense to put the majority of our money in those index funds and reduce the income we put into Prosper and Lending Club.

Whatever your tax situation is, the time you take to understand it fully, will get paid back to you 10 fold. Do I love researching this stuff? Absolutely not! Is it more interesting if it means more of my dollars working for me in the long run? You bet it is! The research doesn’t have to be done all at once. If you find yourself playing candy crush one day, just take a minute to google your tax situation.

Alright – I’m done preaching for today. Stepping off my soap box while you all go happily searching the tax code.

Replacing Rewards with Gratitude

california-11One of my favorite bloggers, The Frugalwoods, posted a great article today about the culture of “treating yourself.”

You’ve had a long day at work – treat yourself to dinner out

You worked really hard to finish a project – treat yourself to those new shoes

You stayed within your budget all month – treat yourself to that shopping trip

Needless to say, this idea of “treating yourself” because you “deserve it” is dangerous. I won’t deny that eating at a nice restaurant or finally getting your hands on that pair of shoes you’ve been coveting can boost your happiness, but at what cost? The happiness boost that  you feel is temporary and when it fades you are left with the same feelings that led you to make the decision to treat yourself in the first place.

Sure, a big part of this trap is the culture we live in that is constantly telling us to reward ourselves or compare ourselves with those around us, but I like to think that I am not subject to the demands of the culture around me. I like to think that I can tune those messages out.

(As an aside, I am actually just as prone to falling into the consumer trap as anyone else. When we lived in Germany, I bought almost nothing, but upon returning to the US the very first thing I wanted to do was go shopping. Strange that I didn’t feel that urge in Germany at all. Advertising. Its powerful stuff. No judgements from me).

The question remains then, “HOW do we tune those very powerful messages about consumption out? How do we fill that happiness void with something other than spending money?”

Since you are all here, reading this blog, I assume you think that I have all the answers (ha! won’t you be sorely disappointed). I can only speak to how I personally combat these messages.

Step One: Keep your goal in mind. I have a tab on my computer that is always open to our savings goal so that I am constantly reminded what we are working towards. I talk with my husband about it every day. I am constantly researching and reading books on how to retire early. While I don’t believe that thinking about it will magically make it happen, I do believe that thinking about it will lead me to make choices that eventually make it happen.

It is hard to justify spending $100 on a pair of new shoes when you know that you would rather put that money to work earning $4 a year for the rest of your life.

Step Two: Gratitude. Any time I feel down or worried, I always return to my gratitude journal. Talk about a magic pill! When you are grateful for what you already have, it is hard to want more. If I want to just order take out, I think about all the delicious nutritious food in my house and feel immensely lucky that I can cook and feed my family such delicious food.

If I want a new pair of shoes (wow – I’m really on this shoe kick today), I think about all the shoes that I already own that I love.

So, there you have it. My two step process to being happy with what you have while working towards your goals.

 

Whose afraid of the big bad Taxes

ilya-2smallTiny Eivy loves tax day since she gets to watch movies while her dad and I wallow in a pit of despair.

I clearly remember the day I received a very official looking letter in the mail stuffed with a sheet of paper which looked liked Egyptian hieroglyphs. Up until that moment, I was a very typical 16 year old girl without a tax care in the world.

I spent my summer at “The Beach” (not to be confused with an actual beach as we lived in the middle of a landlocked desert). “The Beach” was a water park complete with slides and a giant wave pool. It was my first job. I was a lifeguard (not to be confused with TV lifeguards who spend their days laying in the sun working on their tan while periodically running in slow motion to save a drowning super model) which meant that I was constantly pulling toddlers out of the two feet of water at the bottom of the kiddie slide before they drowned (seriously people – the most dangerous place at a water park is the kiddie area. Beware). I made minimum wage and probably worked a total of 40 hours all summer long. I was not exactly rolling in the dough.

The day my W-2 arrived in the mail I had almost forgotten that I had ever even been a lifeguard. Being the smart, resourceful teen that I was, I promptly handed the envelop over to my dad ready to forget the entire unpleasant thing. My dad got a sly wicked smile and handed the letter back to me. “You’ll have to do your taxes this year,” he told me. Huh? Taxes? I was familiar with the concept, but was fairly certain that “doing taxes” involved handing lots of important paperwork over to our accountant along with a big fat check. “Ok,” I said. “How do I get in touch with our accountant?” Evil smile. “Nope – you will do this all by yourself.” Stupid parents with their stupid “learning experiences.”

NBD – I thought. I can do this. I was a straight ‘A’ student. I was good at jumping through hoops and even better at math. 8 hours later, the only information I had managed to fill into the 1040 EZ sheet was my name and address. Never had I read such confusing instructions. It was like they wanted me to fail.

All in all, it took a week (probably more hours than I spent actually doing the job I was paid for) to fill out the one sheet and even then, I was 90% sure I had done it wrong and was going to be chased down by a team of IRS agents wearing black suits and dark sunglasses.

Fast forward 20 years…..

Adam and I gathered all those complex letters, downloaded all our forms, and tallied up all our numbers in preparation for what we cleverly call, “Tax Day.”

Tax Day is the one day out of the year when we sit down and power through the US Tax Codes – filling in every box, sorting document after document, snapping at each other, supporting each other until – like the hero of an epic journey – we triumphantly get through to the other side and breath a sigh of relief. We are done. For the next 12 months…

Ever since our taxes got more complicated than a few W-2’s – about 10 years ago – we have hired someone to take care of it for us. We still dutifully collect all the information and organize it into the “organizer” they give us (which looks suspiciously like the tax forms themselves).

But not this year. This year we took things one step further and decided to do taxes ourselves (with the help of Turbo Tax – we are not completely off our rocker). *Cue the trumpets*

I remember clearly thinking, “I can’t buy stocks. The headache involved in figuring out the taxes would be too much. Best to stick to a regular interest savings account.” When Adam started investing in micro-lending, my first thought was not what kind of return we would get. It was, “how in the world are we going to put this into our taxes?” Our government has successfully created a system that is so complex that I am afraid to put my money to work. No More!

At the urging of my dear friend, I decided to google my tax related questions before Tax Day so that I could make an informed decision about where to put my money before the day it was due. And, like magic, I had my answer.

Back to this year’s taxes.

Adam and I sat down yesterday to do our taxes, but rather than simply fill in the numbers and wait to see what magical number the program spit out, I studied how each deduction helped. When I didn’t understand a section, I googled it (love the google machine). The things I learned! Charitable donations mattered much more than I thought that they did. Repairs on our rental houses mattered much less since we are already underwater on those anyway. Just to name a few.

The point of this very long rambling post is that taking the time to learn how to do things  yourself – rather than hire someone else to take care of it – can not only save you money, it can also empower you with knowledge.

I’m still fairly certain that the men in dark suites and sunglasses are going to come knocking at my door, but I do feel more prepared to answer their questions.

Getting On The Same Team

thanksgiving-2013-5

You know that saying, “two heads are better than one?” This is not always true. I remember many a time in school being stuck with a lame partner for a group project which meant that I was basically responsible for the entire thing. Or, even worse, getting stuck with someone who has very strong ideas about the way something should be done and no interest in hearing anyone else’s ideas. In these cases, two heads are definitely not better than one…but I digress (while traumatic images of childhood flash through my head).

As an adult, surrounding myself with people who’s opinions and value and who demonstrate a certain degree of open-mindedness, two heads are definitely better than one.

No where is this more evident than with my dear hubby. I have ideas about how we should save and invest our money. He has ideas about how we should save and invest our money. This could lead to disaster, instead, it leads to even BETTER ideas of how we should save and invest our money (cue rainbows and singing unicorns).

I know, we can’t all be married to Adam. That would just be weird and pretty miserable for everyone involved, but my point is not to brag. Rather, to sing the wonders of moving past your ego and personal hang-ups with money to listen to a different perspective. Money is a super charged topic. Married couples fight all the time over money stress and different spending habits. If I am being brutally honest with myself, there is a pit of “grrrrr” in my stomach every time Adam and I talk about money. That “grrrrr” however has lessened over time as I’ve come to realize that we are actually on the same page and I can learn things from him just as he learns things from me.

Ok – enough being vague. Let me explain what I mean:

If it were up to me, we would have a strict groceries budget and be investing all our money in the whole stock market (super low fees, aggressive growth, and as long as you don’t sell low, a fairly stable source of interest). Based on the performance of the whole stock market (roughly 9% a year on average over many many years), we could count on a 7% interest rate (I’m being super conservative here) which means we could do a 4% safe withdraw rate when we retire.

This means that when I project our retirement date, I am basing that information off of the assumption that we will make 7% on our investments and live off of 4% of our investments. Is this conservative? yes. Is this precise? no. Its just about averages.

Adam, being the clever person that he is who is always on the cutting edge, found Prosper and Lending Club long before it was cool to invest in Prosper and Lending Club. For the past 8 years, he has consistently make between 8% and 12% on his investments. Not too shabby.

Now, everything that I’ve read about those investments says to approach them with extreme caution. You are essentially giving micro loans to regular everyday people who may or may not default on you, however since you only invest about $25 in each loan, it should average out to a fairly high rate of return. My plan was to take our money out of Prosper and Lending Club and invest it in an index fund, however, Adam pointed out that while the stock market has been going up and down and all around recently, his rate of return has remained fairly consistent. Solid argument, my love.

Over the long term, I do think that the stock market will provide me with 9%, but if Prosper and Lending Club can do better than why not diversify our money. Diversification is the name of the game. An 8 year track record is pretty good.

So, that was a very long example to explain the way that Adam’s thinking is critical to me and my thinking is critical to him. I know that people are able to handle their finances quite well and retire early all on their own (without the support of their SO), but I am grateful to have another head to bounce ideas off of.

February Recap

colors-22Adam is pictured here looking green because we are on the same team! (I know, its a stretch, but there are almost no photos of the two of us together).

Its the first of the month – which is my favorite time of the month because it is the time when I get to add up all the numbers and see how we did. Woo Hoo! Everyone gets excited about that, right?

Since we don’t use a budget, we pretty much treat every day like a challenge to see how much we can save (notice, I did not say, “to see how little we can spend.” I know it just seams like semantics but living in a place of abundance – “how much” – vs a place of deprivation – “how little” – makes all the difference in the world).

So, the beginning of a new month is kinda an exciting time in our household!

Adam and I sat down together yesterday and looked at our goals. Kinda like one of those important meetings that I’m sure he has to go to for his job – or the meeting that I have by myself once a year for my business (ah – self employment). BTW – these meetings are WAY more fun when there is more than one person involved.

We noticed that we spend a lot on groceries. This makes sense since we both agree that worrying about every little item in our cart at the grocery store is the quickest way to hate our lives and start to get snippy with each other (“that jam you are eating costs $4!” and “do you really need fizzy water everyday?” While expensive jam is just ridiculous, fizzy water is, in fact, a necessity – fyi). So, we don’t worry about groceries.*

What are the affects of not worrying about groceries, you might ask? Consistently around $700 a month. Bear in mind that we eat out maybe once a month so that is all of our food (breakfast, lunch and dinner) for the month.

We had been assuming that we would only spend $400 a month of groceries when we retire so we were faced with a decision: spend less on groceries or up the assumption number. Since we all know what happens when I don’t get my fizzy water, we chose to up the assumption number to $700 a month. This had the affect of pushing our retirement date out 10 more months. 🙁

We also noticed that every month we had some sort of random expense: January it was the great breakdown of everything that we owned; February it was a road trip to visit family in Northern California.

Rather than plugging our ears and humming a tune to pretend that these expenses don’t occur, we decided to include an additional $500 a month “other” in our retirement assumptions. This added more months to our retirement date. 🙁

My dear husband, being the eternal optimist poured over the numbers while we discussed different ways to bring that number back down. Not to leave you hanging, but we figured a way to cut almost a  year and a half off. I promise I’ll tell you more about it in the next post.

In the meantime – here is our percentages for the month of February:

  • percentage of the way towards our ultimate goal of early retirement: 25%
  • percentage of the way towards paying off our house: 47.2%
  • percentage of savings in February: 61.7%

*except for sugar and alcohol. we have decided that these luxuries should come out of our individual “slush funds” that we provide ourselves each month rather than the family food money