$ - Ways To Generate Passive Income

Let's not confuse things here. Many people call things like selling off your stamp collection passive income. I completely disagree. While this is not a job, it does take work. Anyone who's ever tried to live off of selling on eBay or Amazon will tell you that it's alot of stress. Passive income is truly passive. As in you do nothing or virtually nothing. Your savings account is passive income. You do nothing and your money grows. So what are some other methods?

 - Shop around for a better interest rate on your savings

- Refinance your home

- Consolidate debt while paying it off

- Use a credit card with rewards to pay bills

- Recycle your own aluminum cans

- This may be the simplest one but it's often overlooked.  Barter.  Yep trade something you have for something you want.  Along with bartering is haggling.  Learning to be a haggler can save you plenty.

$ - State Farm's Drive Safe & Save OBDII Plug

Drive Safe and Save?  What on earth is that?  Well, it's essentially a little plug that goes into your OBDII port of your car.  That's a little connector near your driver's seat that mechanics use to diagnose your car's symptoms when you take it to the shop.  If you've ever driven with a Check Engine Light on this is part of the same system.  A device plugged into this port will tell you why the check engine light is on.  Now, in addition to turning the light on, the same system also documents all sorts of things.

These same things with State Farm's plug can report via cellular to State Farm how your driving.  For instance, did you ever notice that on your policy it may say principal driver drives over 7,500 miles annually?  That's because that is the average driver so that's what your rates are based on.  So what happens if you drive 8000 miles or 10000 miles?  Nothing.  You pay the same rate.  With the box, you may get a savings for only driving 8000.  Why?  Because you are essentially more likely to have a claim if you drive more.  The same applies for excessive speed, braking, etc.  So if you are a safe driver who obeys the laws, you should save on auto insurance right?  Well, you probably do if you've had no claims for years, but you could be saving more.

Look, this program is not for every car nor everyone but you can save some cash for doing what you already do.  It's completely free for the first 12 months and after that is $6 a month.  You cannot increase your rates due to driving so you basically have nothing to lose.  I signed up for it in April of 2014 and they were running a deal where just for trying it, you save 5% instantly.

I know that some of you are gonna claim that big brother is watching you but they already are in a sense.  This device works over cellular not GPS so they only know within 40 miles of where you are.  They don't know or care where you are buying your groceries at, they just want to ensure that you are driving with road rage on a regular basis.

State Farm claims up to 50% savings but we all know that you never actually get the amount quoted.  Realistically speaking you will probably save somewhere around 5%-15% for doing nothing extra.  I have mine installed in my daily driver Honda Fit Sport and I'm saving 12%.

Also worth mentioning is that the little plug also comes with a much larger box that you can optionally clip on your visor.  This device adds bluetooth handsfree to your car with a compatible smartphone.  It instantly synched with my Iphone 4S.  The visor clip can add other features similar to On Star but those come at a premium.

So what's the catch?  1) Well, if you are currently driving like you are qualifying or delivering pizza and clocking in 25,000 miles annually, your insurance agent will find out.  2) When you call to activate the service they will try to sell you on the optional coverage.  The person I talked to was really nice about it.  I told her that I wasn't interested and she just moved on.
There are some neat optional features for those premiums though so consider them.  One of them monitors your warranty recalls, check engine lights, etc.  Another can report accidents or even where the vehicle is currently sitting, this works even if the vehicle is not running and even if flat-bedded off to another location without being driven.

All in all for me, getting free bluetooth and a 12% savings on my rates is truly a no brainer.

Call your local State Farm agent if you are interested in trying it yourself.

$ - Using a Credit Card

Dave Ramsey would absolutely hate this post but let me explain. DR deals with people with spending problems and not everyone has them. I have a buddy of mine who hasn't carried a balance on a credit card in more than a decade. What's his secret? He pays the balance in full before he's ever billed for it. He never spends money that he doesn't have in the bank. He simply uses the card when convenient and as soon as he get's home he sends the credit card company their money. See, alot of people have good intentions and claim that they pay their bill in full every month but a closer look at their records would prove that they have occaisionally paid a late fee or carry a balance every January from their Christmas debt until their income tax refund arrives. These are the reasons why DR is so against cards. He knows that the average person has things come up and makes mistakes. These mistakes cost you in the long run.

So how does all of this add up to extra income? If you use the method that my buddy does, then you can earn rewards while basically paying cash. Shop around for a card that has no annual fee and has a 30 day billing cycle so that you are certain to not inquire any fees from paying it off each month. If you do this correctly, you can get some free miles, gift cards, gas savings, etc. Do it incorrectly even once a year and you have lost everything you gained.  This one is clearly not for everyone.

$ - Reduce Your 401k Contribution

Now I know some of you are gonna argue with me on this one. Stating that because of compounding interest you will never catch up. While that is true if you do it for 10 years, the goal is to be out of debt as soon as possible. So if you are currently contributing 5% and can barely pay your bills. Drop the 5% for 18 months then once out of debt, reinstate the 5% and anything else you can afford on top of that. Most of us will go from 5% to 18% and quickly you will be building wealth much faster than you would have if you kept going on the way you were.

Basics - Generate Additional Income $

Look, I'm going to make this very simple. You are in debt and/or not building wealth because you are spending more than you make. There are two ways to correct this but I prefer to use both as it's significantly faster. So first of all you need to establish your monthly spending plan so that you know what you have. Next make sure that you free up all of your income that you can. Now you assign every dollar you have a task. Whatever is leftover can go towards debt. For more information see the post on establishing a monthly spending plan.

Next, generate additional income to speed up the process. Remember that your base income will cover all of your bills so all additional income can go straight to debt. Once you are out of debt then apply the same principle to wealth. This will replace the amount you deprived your 401k and then some in the long run. For more details please see my post on freeing up your income.

So just how do you generate additional income? Of course you can sell stuff on eBay, get a part time job etc. Keep an eye out for posts on here that are labeled with the dollar sign ($). I will be providing numerous other opportunities.

$ - Cash for exercise

Have a Fitbit?  Use mapmyrun?  Myfitnesspal? You could be missing out on some free cash. If you don't know what a Fitbit is, it's basically a glorified pedometer.  It's a pedometer that also tracks sleep patterns and has an online tracking system for calories in and calories out.  With the Fitbit and watching my diet plus walking 5 miles daily I lost 95 pounds in under two years.  

So how was I missing out on cash?  If you link your Fitbit account to Achievemint.com you can get a $50 gift card from points earned doing what you are already doing.  Of course depending on how much exercise you get, that will dictate when you get the card.  

Walgreen's also has a rewards card like every other retail store these days.  Add your fitbit account to walgreens and you get free money from them too.  

There are probably other sites for this too but I'm unaware of them.  Please add a comment if you know of other similar programs.

Basics - Free Up Your income

In order to maximize our debt paying potential we need to do a few things:

1) Change your tax rate.  If you are getting an income tax refund every year then you are overpaying on taxes.  While it's nice to get a big check once a year, you are essentially giving the government a loan at 0% interest.  To make matters worse, if you also have debt then are paying someone else interest to borrow at the same time.   

2) Reduce your 401k contribution until your unsecured debts are paid.  Yes I said that right, you must reduce your contribution now to build wealth later.  Why?  Your earnings just don't offset what your paying out.  The only way debt while building wealth ever makes sense is in the case of a very low interest rate on an appreciating asset such as land.  Now I know some of you are gonna argue with me on this stating that because of compounded interest you will never catch up. While that is true if you do it for 10 years, the goal is to be out of debt as soon as possible. So if you are currently contributing 5% and can barely pay your bills. Drop the 5% for 18 months or so and then once out of debt, reinstate the 5% and anything else you can afford on top of that. Most of us will go from 5% to 18% and quickly you will be building wealth much faster than you would have if you kept going on the way you were.  

3) Stop overpaying on all accounts except for one.  Are you paying an extra $20 a month on 3 credit cards?  Or rounding up your house payment each month?  Stop!  Take all of this extra and put it on your debt reduction plan (snowball).

4) Ditch any extra services not needed such as Netflix, Cell Phone insurance, Magazine subscriptions, etc.

Basics - Your Debt Reduction Plan - Snowball, Avalanche or frustration?

When it comes to your debt reduction plan there are numerous options but I will cover the most talked about ones in detail.  Regardless of which you choose, you need to get a whiteboard, scrap paper or spreadsheet and to compile a list of all debts.  We want to know your current balance, interest rate, available credit, and of course when it's due each month.  All of this is available on your monthly statement.  

1) The old tried and true pay the highest interest first method also called the avalanche.  This is the method Suze Orman advocates regularly.  Basically look at your list and whichever one has the highest interest rate gets paid off first then the next, right down the line.

2) Debt Snowball is Dave Ramsey's method.  Take a look at your list and find the one with the lowest balance, attack that one first.  This method may not make sense on your calculator but it does provide stress relief.  If you are currently opening 10 credit card bills in a month and can within a few months reduce that to 6, you have cut 40% of the worry.

3) The frustration method isn't really a method at all it's simply kicking the bully out of your life.  Take a look at your list, which one causes you the most anger, frustration or heartache?  Choose that one first.

4) Debt to income makes no sense to me.  This is essentially choosing the one that's the closest to its limit.  While this is important to your FICO score, you should not be worried about that while in debt.

So which one is best?  Much like a diet, the most effective one is the one you stick with long term.  I personally started with the debt snowball until I got down to the large balances and then switched to highest interest first.  In short, do what works for you.

Basics - What's an Emergency Fund?

Ask Dave Ramsey or Suze Orman and you will find different opinions on the quantity required in your emergency fund but both agree that you need one. So just what is it? Essentially it's accessible cash. This is money set aside not for wealth building but for things that come up. This is not spending money and should be kept in a separate account just to prevent you from overspending. This money is used for things that you do not have enough cash flow in your spending plan to cover. Good examples are insurance deductibles, furnace repairs, cars breaking down, etc. These things do happen but they are really hard to plan for and to someone who swims in credit card debt they are a constant source of worry. Those with an emergency fund do not have to worry as it's always there just in case.

Now let me set one thing straight. Some say that you need six months of household income while others eight months or even a year. I personally agree with all of those but you don't have the money to build this fund while still paying on debt. I happen to agree with Ramsey here in that his first step is to set aside $1000 dollars and then put every penny you have into paying down debt. Later you build up that $1000 into month’s worth of income. What I disagree with is that he calls both of these funds, your emergency fund interchangeably. I personally believe that the $1000 is you’re just in case fund and the several months' fund are for a true emergency. I personally chose to keep that $1000 in my regular bank's savings account so that I have readily available access. The true emergency fund is kept in an online bank which I can write a check against or use a debit card. I do NOT carry either of those around with me. Any true emergency can be easily covered with this account by stopping at home. Even if your car's transmission goes out, you can probably give them $500 down and pay the balance later, same goes for medical emergencies, etc.

So let me be very clear here, this does not mean that the just in case $1000 is not for emergencies. You will first try to cover the expense with monthly cash flow by robbing other portions of the monthly spending plan. Next if the emergency is too large to cover with cash flow, then utilize the $1000 and ultimately then into the large emergency fund. Beginning with your next paycheck, you would then begin refilling the $1000 bucket before paying down additional debt. To you Ramsey fans, the Just in Case $1000 is referred to as Baby Step One (or BS1). Think of it like this: Cash flow, then $1k, then Emergency Fund. One other thing to always keep in mind is to tell the business that you will be paying cash and ask if they offer a payment plan or discount based on that.

Basics - Establish a Spending Plan

Say the word budget and most people get scared. They immediately are overwhelmed with feelings of constriction. While this is simply not true, I prefer to think of mine as a spending plan.  It's truly about telling your money where to go instead of wondering where it went.  

Each month before I get paid I make a plan for all the bills that are due before the next paycheck and filling my buckets.  What are buckets?  These are also known as envelopes or sinking funds.  Think of it this way:  Every year I buy a season pass to the local amusement park and each year I would charge  the expense on my credit card as if it was unexpected.  Today, I  set aside a portion each month.  When it's time to pay, I never even miss it.  This same type of process is done for everything from toiletries to my two kittens' vet care.

While all of this sounds hard to do, it's simple after the first month and it provides stress relief because the money is already spent filling the buckets before you actually spend it physically.  The only part of this that's up for debate is if a bucket continues to have excess in it at the end of the month then what do you do?  You have a few options:  1) reduce the amount put in monthly 2) blow it 3) do not put anything in for one month and redirect that money elsewhere 4) continue to add for a larger event.  I do a combination of those things depending on the bucket.  The kitties' bucket continues to grow as you never know what'll come up.  The restaurant bucket I blow by taking my wife out for a special night when we have extra.  The clothing budget has a cap.  Once it's reached I redirect the money elsewhere until we spend some out of the bucket.