February 2010 Archives

Check out the latest Carnival of Personal Finance. My favorite entry this week was:

Eating Healthy and Inexpensively

This blog highlights something I've noticed on the frugal forums I hang out on.  Many of the people there will load up on starches like rice and beans or Ramen noodles because they are cheap forms of calories and then a disproportionate amount compared to other people I know seem to have diabetes. It seems like people who are frugal because they have to be get caught in a Catch-22 situation of low cost starches now - health issues later.

1.  Think about the topics you may know something about - more than the average person. My first web site was on some weird health problems that ran in my family and how we corrected them. It turns out the problems weren't as rare as I thought, and now that site gets thousands of visitors a day. Try to write about a topic you enjoy.  Then writing about it won't even seem like work. My first sites had thousands of visitors a day before I even realized I could put ads on the sites and make a living just by making web sites, writing about my hobbies and solutions to health issues.

2.  Start out not investing any money in your web sites at all.  Okay, maybe you can buy your own domain name.  But really, you don't need to spend a lot of money to make money on the web. My first web site was on the free hosting from my ISP.  I got kicked off of there eventually for using too much bandwidth as my web site grew in popularity.  Your best investment is most likely going to be really interesting articles that just take time to create. You can do this with a totally free blogspot blog.

3.  Start out with easy to rank for terms.  The longer the term, often the less competition there is for that term.

4.  Get links for the easy terms first, start ranking, get traffic and then if people enjoy your articles they will give you free "natural"  links and you will soon be ranking for shorter, more competitive terms. Links from other sites are currently the currency of the web.  The more links you have, and the higher the quality of the sites are that are giving you those links, the higher your site will rank in the search engines. My main Always Frugal site started out ranking for the terms like  "how to make extra money when you don't have a job" .  It's a long term for sure, but in the current economy I actually started getting traffic on this term.  Eventually, without much extra effort on my part, I started getting traffic for the shorter term "how to make extra money" and other variations with more traffic.

5.  Look for topics with lots of advertisers but not a lot of competition. If you enter a term in Google and there are lots of ads long the sites of the listings, that is generally a good sign.  If you enter a term and there are no ads, then write about your topic it if is a hobby topic but don't expect to make a fortune from it even if you end up getting traffic.

6.  Don't get discouraged.  Many bloggers fail because they are only making $1 or so a day from their blogs and give up.  Remember, most bloggers and web site publishers don't start out on day one with thousands of visitors.  If you know how to make $1, then repeat what you did to make that $1 and start making $2 a day. 

1. Make your own greeting cards for free.  The Hewlett Packard site has hundreds of free downloads.  Invest in a pack of greeting card paper, select the card you want, print it and you are good to go. I just made a store quality valentine card for my husband in under 5 minutes.  Four of those minutes were spent finding where I put the card paper stock. You can buy a pack of greeting card paper with envelopes for about $9, so each card can be printed for around 30 cents, plus a few minutes of your time.

2.  The actual, official free credit report site is at www.annualcreditreport.com. This site allows you to order a credit report once every twelves months from each of the nationwide consumer credit reporting companies: TransUnion, Equifax, and Experian.

Many of the free credit report offers online are in fact scams.  If you sign up with them, you (maybe) get one month for free and the get your charge card billed for access to credit reports monthly until the end of time. In a way you have to give admire the diabolical cleverness of the credit reporting agencies for finding a way to make money for a problem they helped to create (easy credit fraud).

3. You can get many free books online at books.google.com and www.gutenberg.org.

4.  Get free books, audio books, DVDs and subscriptions from your local library.  Most people know that libraries offer free book rentals, but these days the freebies don't just stop at books.  My favorite freebie from libraries is subscriptions to online journal and magazine sites.  Most libraries subscribe to a number of these subscription services.  If you write for a living like I do, or do other kinds of research, access to these online services is a fantastic resource. In California you can get a library card from many different cities, and correspondingly many different journal services, as long as you are a resident of the state. If you live in California, or a state with similar library rules, stop in to various libraries whenever you travel and get a card. This will give you access to a wide range of online, free full text articles you won't find in the search engine listings.

Hint: The libraries in cities with the highest home prices tend to have the best online research tools.

5.  If you have a Kindle book reader, there are some books you can download for free at Amazon.com.

6. iTunes has many free podcasts.  I like to download the self improvement topics, like the ones from the nutrition departments at colleges on how to eat healthy.  

Make It Once, Sell it Until the End of Time

The beauty of passive income is that you can create or invest in something once and earn income from it for years.  If you make a bead necklace and sell it on eBay for $30, that's great.  You have $30 more than you had before.  But to make another $30 you now have to make another necklace.  If you make a web page that makes $30 in one month, you might still make another $30 the next month without having to do any extra work. In fact, if you are lucky, you might just make $30 a month or more for years into the future with that one page.

One of the reasons many people aren't more financially secure is that they do not understand the concept of passive income generation.  Years ago I made a small web site in a couple of days that started making $3 a day after it had been online about a month.  The topic was evergreen content that would require little updating over the years.  In my mind I was going to make $3 a day, 365 days a year for 5 years (or more) for two days work.  That comes out to a total of $5,475 over 5 years, or $342 an hour for my 16 hours of work.  

I was really excited at the concept and told one of my friends all about it.  She looked at me like I was a 5 year old who had just found a quarter on the side walk.  She kept asking me why I was so excited over $3. For years afterwards, she would send me job ads for intern positions and minimum wage jobs. She thought I was desperately poor because I was so excited over making $3.  In her mind she was trying to be a good friend and help me out by getting me a "real job".  I tried to explain to her the concept of passive income generation, but it never really clicked.  She never got past my excitement over making $3 for one day. So for years my friend would send me the low paying job ads and for years I would politely express my thanks and let it go at that.

Some days my little site makes more than $3 a day and some days less, but since it has been online it has consistently averaged at least a thousand dollars a year for little extra work on my part each year except to pay the small hosting fee.

Ways to make passive or semi passive income include:

Royalties on books, DVDs, online videos, audio books, etc.
With the advent of the Internet age and easy self publishing options, almost anyone can create their own book or DVD these days,  My idol with this model is J.K. Rowling. She wrote each Harry Potter book once and has now earned over a billion dollars in royalties and licensing fees with no end in sight.  

Income from revenue sharing sites for blog posts, forum posts, and article writing
Since the revenue is shared with the site owners, the income per word on revenue sharing sites is generally much lower than most good writers could do with their own blogs or web sites.  The advantage to revenue sharing deals is that it is easier to get traffic since these large sites are already ranked in the search engines.  Though it may be an easy way to make some extra income, in order to make a living at this model you often need to have thousands of articles online, because the pay per article is often very low.  Many freelancers who use this model claim to make average anywhere from 30 cents to $2 per article per month.   

Rent from real estate
In terms of tax lingo, real estate rent may be a passive income activity, but in terms of hours of work needed to generate $1 of income, personally I think real estate is a lot of work. Initially looking at properties, finding one to buy, and sorting out the financing and acquiring the property is quite time consuming.  Later on there is finding and keeping good tenants and keeping up the property. If you have an older rental that needs a lot of maintenance work, have tenants that don't keep up the property or pay the rent on time, dealing with these issues can take up a lot of your time. 

Licensing inventions
This is a good option for creative types, but not everyone can think up ideas worth licensing.   If you like this option, watch the show Shark Tank on TV.  Budding inventors present their ideas to a panel of money sharks who either invest in their businesses or send them packing. Hint: most people get sent packing. 

Interest income from financial instruments like savings accounts, certificates of deposits and Treasury bills and Treasury Inflation Protected Securities (TIPS)
This option is the least work but you have to have the money to invest upfront in order to make money.  Right now with interest rates so low it you need a very high principal to make a living off interest income. 

Ad revenue from web sites and blogs
This is one of the easiest ways to get started with literally zero upfront costs.  Anyone with basic computer skills can sign up for a free blogspot blog and have a blog up and running in an hour or so with Adsense ads on it. The downside is that you have millions of competitors in most popular topics. Plus it may take time to build up a readership and achieve decent search engine rankings.  I like to write about personal finance so I keep up this blog and companion web site up more as a hobby, but my web sites that make the most money are generally the ones on much less competitive topics.

Dividend income from stocks
This was a safer strategy years ago.  With the seesaw fortunes of major banks and other industries these past few years, dividend income isn't something to be counted on for stability as much as it has in the past.  Still dividend income makes stock ownership less volatile than just counting on capital appreciation.

Capital gains appreciation from assets like stocks, real estate, gold, collectibles
Over the really long haul, inflation often helps assets like these rise in price, but it isn't something you can always count on. During recessions and after market "bubbles", assets like these can take a huge tumble. 

Cash Back Credit Cards
If you pay your credit bills off each month, consider getting a cash back charge card.  Some pay as high as 2% right now. I pay for groceries and utilities with my cash back cards simply for the rewards. You have to buy food and pay your phone bill anyway so why not make a little extra money off each transaction?  After the initial work of finding a high paying rewards card, you can earn money, airline miles or gift certificates with little extra effort throughout the year.

Buying Groceries on Sale
This requires a non-passive effort, but most of us have to buy groceries anyway so it is not a lot of extra work for the amount of money saved. Stockpile those nonperishable or freezable groceries when they are on sale at 2 for 1 prices and make 100% return on your money.  Since you are buying groceries with after tax money, the $10 you save on loss leader groceries after tax might be equal to earning an extra $20 in income after state, federal, local, social security and medicare taxes are deducted from your pay.

Maximum Rewards for Least Effort
Passive income is helpful for making the most income with the least amount of effort.  That $3 a day web site today might just turn into thousands of dollars over the years without any extra time invested in it. When groceries are on sale at half price, it is almost as easy to buy 6 tubes of toothpaste as it is to buy 2. Each time you make an investment, spend money or envision a money making project, think about how much work it will take over the long term to bring in each $1 of future income.