Burnout and Other News

It has been a few weeks since my last post, and the reason for that is I’ve been overwhelmed and exhausted at work. It’s odd how quickly that can happen in a small law firm. My assistant was out of town last week, and as the trip was approaching there was not a whole lot going on. But of course the second she leaves town all hell breaks loose, and I have new cases coming in, clients calling with “urgent” deliverables, and work that the assistant could have helped with piles up on my desk as I try to tread enough water to keep things moving.

She came back this week and the chaos has continued. Mediations, hearings, settlement conferences, and of course plenty of phone calls and meetings. Thankfully, a few decent sized retainers have materialized out of that chaos, so at least money is being made, but as Friday approached I found myself settling a case at 4:30 (a time sensitive debt collection matter). As I walked out of the office I realized that a few things on my list for the day did not get done, and I have a full plate ahead of me Monday – so I’ll be in over the weekend to get ready and back up to speed.

It’s a great problem to have too many clients and cases. Usually I am “slammed” or bored out of my mind at work. Rarely is there that perfect balance of work coming in – it just doesn’t pan out that way in a one man law firm. I’d rather have too much going on than not enough, especially since this seems like a slow year for me. So I’ll take on additional cases as they come in, with the idea of slowly digesting that work. But as I look back 2016 has been the most frustrating year of being in business for myself.

I have had major staffing problems this year and that has really fucked with my “work-life” balance. It has made for an exhausting and less profitable year. My long term assistant left, I hired a new gal that I had to fire after 2 months, and then I hired another new assistant, who is working out alright, but needs a lot of hand holding and training – time I haven’t been able to put in this week. It’s hard to find good help, especially good part time help, and hiring and firing (plus management) is not something I have a lot of experience with. There is definitely a lot of “learning” going on here as I struggle to flesh out this aspect of my law business, and I definitely want to get that handled. Especially because I can see how this impacts my bottom line and mental health. When you start a venture you expect each year to be better than the last, and so far that has been the case, but I can’t help but think that 2016 has been steps forward in some respect, but steps back in others.

Anyhow, I don’t mean to cry, although I realize this can come off as being pretty whiny. I just wanted to chronicle this aspect of my law firm. Recently I listened to an excellent episode of the Empire Flippers podcast about “the dip” and several dips in their business and how they handed them. It was a great episode, and this is a subject that doesn’t get discussed often enough. The dips are part of all businesses. We all are beset with challenges and obstacles. It’s how we respond and improve our direction and processes that defines us.

Other News

Besides losing my mind at work, a few notable things have happened. First of all, I have decided to cut back dramatically on the amount of alcohol I drink. I think I’ll save that for a stand alone article. So far I don’t notice a huge difference, but I think it’s a worthy goal for a number of reasons that I’ll dig into further later.

My affiliate website appears to be finally picking up speed again after months of gradual decline since the holidays. I have invested thousands of dollars into content this year, and have been posting on a schedule (once a week). I have been keeping to that schedule; something I wasn’t able to do previously before hiring freelance writers to help out. I also invested in some social media scheduling software, consistently re-posting articles from my long list of archives. Despite dumping lots of money into content, the stats just dipped lower and lower every week: from 110,000 pageviews a month down to 80k or so.

But things finally appear to be heading back in the right direction. Stats are slowly climbing, and so is profitability. I will pull in close to $2,000 for July, which would be tremendous. Typically summer is very slow for Amazon affiliate sites, with the holiday season bringing in big numbers, and those numbers sliding off dramatically as we head into the dog days of summer. To have a $2k month in the heat of summer like this is an excellent step in the right direction. The idea is to continue to grow the website, with each new article attracting new readers and turning a profit. That idea is finally starting to bear fruit.

Also, now that my student loans are paid off I have been funneling money into a brokerage account, and looking at investment real estate. I am looking closely at duplexes. The market is hot now, but rents are also up. Despite the high valuations some of these properties appear to actually cashflow OK when you run the numbers. We are starting to work with an agent and I am itching to make some offers. While I am not sitting on tons of cash, I have enough available to make a purchase, and now that I am not paying down student loan debt at the rate of $2,500 or so a month, my cash reserves and non-taxable brokerage account balances are growing. Buying more rental property is inevitable. It’s something myself and my partner want to do, so we are going to make it happen.

I had to go on a trip for work the other weekend and took my girlfriend along. On the way down we listened to the Rich Dad Poor Dad Cashflow Quadrant book in the car. I have listened to this a couple times now and it’s a great book. Same with the original Rich Dad Poor Dad. Give them a read if you haven’t already.

The Rich Dad Poor Dad concept is all about creating assets. An asset is defined as something that produces cashflow. We sometimes get sucked into the pipe dream that our primary residence is an “asset” or our small business is an “asset”. If you were to leave your small business for a year, and if the business could not survive without you, then that’s not an asset. That’s a job. And if your house doesn’t throw off cashflow every month, then it’s not an asset either. Housing is a cost, and running a small business is a job. There is nothing wrong with owning a house or having a job, but the goal is to ultimately reach financial freedom. The entire premise of the book is to acquire assets to reach financial freedom. That is exactly what I intend to do.

Closing Out

As I close out this rant I feel better. Blogging / journaling like this has been incredibly cathartic. I am going to relax for the rest of the day. Maybe do some yard work and go swimming. Read a few pages of the Rise of Endymion (which has been pretty good so far). I am going to have dinner with my girlfriend and her family tonight.

Tomorrow I’m going to sleep in a little, then have a leisurely morning before I hit the gym and then head into the office for a few hours to get ready for the week. The past 2 weeks have been brutal at work, but I look forward to closing the door on them, and starting fresh this Monday. There is much to be thankful for, and we can easily lose sight of that while in the trenches, swearing and sweating profusely as the proverbial sausage gets made.

Book Review: Sapiens by Yuval Noah Harari

I have read a handful of books over the years that have really resonated with me. To the point of changing my long term perspective and in some cases even my outlook on life. In college 2 of those books were How To Win Friends and Influence People and The Selfish Gene.

How to Win Friends changed the way I viewed social interactions, largely by being less selfish and focusing on the person I was interacting with. The concept of being genuinely interested in someone and listening to them, rather than merely waiting for my turn to talk.

The Selfish Gene changed the way I thought about plants, animals, and the intersection of biology and culture. Biologically all living things exist for the express purpose of passing their DNA along. That simple yet fundamental concept has informed every aspect of living world. It is easy to take a blade of grass for granted, but when you think about how everything serves the purpose of passing it’s DNA on, it creates an entire new perspective. It did for me at least.

It has been probably 10 years since have read both books, but the core concepts have remained with me, and I like to think I remain a better person for it.

I recently downloaded a copy of Yuval Harari’s “Sapiens”, and I think that this book is right up there with How to Win Friends, and The Selfish Gene. It’s framed as a book about history, and it’s an overview of the history of mankind, but it touches on all kinds of topics – including personal finance in a roundabout way.

The book starts in pre-historic times, and discusses the rise of our species Homo Sapiens. Our conversion from hunter gatherers, to farmers, to industrialists, to gods. Along the way he touches on all manner of subjects from a simple yet omnipotent perspective. I am not a huge history buff, but still found most of the book fascinating.

One aspect of the book that I found very interesting was Harari’s exploration of the “Myths” of mankind. The myths of religion, culture, sexuality, human rights, politics, economics, and law, to name a few. These are completely made up constructs. Figments of our collective conscious woven together and iterated upon over millennia. We talk about the rule of law, but really it is the fiction of law. A fiction we collectively have bought into, ultimately enforceable by the threat of bodily harm. As a lawyer I totally agree. At many times it does feel like practicing an alchemy of sorts. An alchemy supported by trillions of tiny bits of paper floating about and connecting us. Democracy is a fiction. Religion is a fiction. Capitalism is a fiction. And mankind loves to debate (and wage war over) the efficacy of these fictions.

Oddly enough Harari argues that the only universal fiction that the world has really bought into is money. That is the tie that binds us all together as a globe. He talks about the history of money, it’s origins and evolution. In that discussion he also talks about luxury:

One of history’s few iron laws is that luxuries tend to become necessities and to spawn new obligations. Once people get used to a certain luxury, they take it for granted. Then they begin to count on it. Finally they reach a point where they can’t live without it.

This is so true.

Ultimately, Harari argues that despite us living in an unparalled era of wealth, peace, and prosperity, people are no happier today than they ever were as hunter gatherers. In some ways be may even be less happy. Although we live longer, we are definitely less healthy. We spend less time with our families, and more time in the face of distraction. The world is a more complicated place, and although there have been great advances, we have become a slave to luxury. In deciding to become farmers, humans became slaves to agriculture. We eventually became industrialists, and humans became slaves to material objects. Now as we live in the information age, we have become slaves to the very information we seek. We can argue that each of these ages have ultimately brought advances to our quality of life, but I think we also need to admit how they have become a great distractor as well.

While this doesn’t mean I am going to abandon things like grocery stores or modern medicine, it’s a great reminder to be grateful for what we have, and to enjoy the journey because for most reaching the destination only means wanting more.

Exploring the concept of happiness further, Harari looks into Buddhism (a subject I know essentially nothing about). The Buddhists argue that suffering is caused by the behavior patterns of ones mind, and that suffering arises from craving. The only way to be liberating from suffering is to be liberating from craving. And the only way to be liberated from craving is to train your mind to experience reality as it is.

It’s an easy concept to distill into a few sentences, but it’s man’s oldest problem. Hardly anyone ever reaches nirvana. We are all compelled to want, and must consciously repress our biologically programmed craving for more.

Pretty heady and interesting stuff. It certainly has given me some things to chew on, and more than a little perspective. While the book may not provide the end user with any “tactics” for reaching Financial Independence, it does provide a wealth of meta information. As we work towards the goal of Financial Independence we have to ask ourselves what the real goal is. I think for most it’s the simplification of life and the shift from fulfilling obligations to exploring fulfillment itself. In our way there are a great many distractions, and if we can work to build up enough assets to meet our basic obligations of food, clothing, transportation, and shelter, it can allow us to exist and free of from many of the barriers we have erected in our minds as a society – if we permit ourselves to be content with the moment.

Ultimately, the greatest irony of this material world is that “not wanting” leads to higher level of personal satisfaction and happiness.

Sapiens is the best piece of non-fiction I have read all year, and arguably the best book I have read in a long time. Recommended reading for anyone, and especially poignant for those seeking FI.

Should I Pay Off Student Loan Debt or Invest?

This will be the first in a series of basic investing posts. As I think about where I want to go with the website, I realize that I should answer the questions I had when I started out and share what I have learned in the process.

One of the biggest dilemmas I ran into personally was the question of whether it was best to use excess cash to pay down my student loan debt, or invest in the stock market (and by “stock market”, I of course mean index funds – not individual stocks or managed funds). This same question could be asked with medical debt, credit card debt, a car loan, or possibly even a mortgage.

I am here to report that there is no perfect answer. I think there are good arguments for both sides. As I tossed this idea around, my ultimate answer was to do both. Invest in the markets, and pay down debt at the same time. Here is the order I would do things in:

1. Make The Minimum Payments on Your Student Loans

The first thing you need to do is not default on your debts. I guess this goes without saying, but start by making whatever the minimum payment is.

2. Max Out Your Tax Advantaged Retirement Accounts

I didn’t do this at first (I was trying to figure all of this stuff out), but if I knew then what I knew now, I would have started a SEP IRA the first year for my business and contributed as much as I could to it. Instead I contributed to a ROTH IRA in my first year. I could have saved some money on taxes by funding a SEP in my first year, but am glad I at least contributed to something. The advantage to contributing to a SEP IRA (or a 401K, or some other tax deferred account), is that the contributions are tax deductible so you pay less in taxes. As someone who is self employed and making money, this quickly becomes a big deal. Taxes are killer, especially for the self employed, and it makes sense to legally avoid them at all costs.

If your employer offers a 401K, I would at the very least contribute whatever it takes to get the employer match. That is “free money”. In a perfect world I’d max that sucker out.

3. Split Anything Left Over Between The Loans and a Brokerage Account

If you have made the minimum payments on your loans, have taken full advantage of your tax advantaged accounts, and still have money left over, then that is where it starts to get interesting. You could throw that extra loot towards your student loans, you could fund a non-tax advantaged brokerage account, or you could do what I did: both. I suppose you could also do something else with the money, like create an emergency fund, save up for real estate, blow the money at a strip club, etc. But for arguments sake we will just assume you want to either pay down debt or invest with this extra cash.

What makes the most sense will depend on the interest rate on your loans, whether you can take advantage of the student loan interest deduction, and your tolerance for unsecured debt.

If the interest rate is 6.8% like mine was, I would strongly advise using most of the money to pay down the debt. By paying off down the loans you get a guaranteed return of 6.8%, which is pretty excellent if you are talking about guaranteed returns. I’d take 6.8% guaranteed all day over the vagaries of the stock market.

I’d also chuck more towards the loans if you are just starting out your repayment plan. You pay more interest at the start of a loan, so by making additional payments to principal early on you both reduce the total amount of interest you will pay, and you will reduce the life of the loan. Contrast that with getting towards the tail end of a loan. In that case, you are mostly paying principal.

img-loan-amortization-chart

If your loans are at an interest rate of below 4%, the decision may become harder. I ended up refinancing my student loans about half way through repaying, and my new interest rate was around 3.7%. 6.8% made the decision easy. 3.7% gave me pause. The prevailing notion is that the S&P 500 has historically yielded an inflation adjusted return of 7%. So on average you are going to get a superior return investing in the portfolio and playing some interest rate arbitrage. Your net return will theoretically be greater if you make the minimum payments on the student loans, and shovel excess capital into a portfolio.

While the cold hard calculated answer may be to invest the difference in a portfolio, some people really don’t like unsecured debt. I don’t think you can fault those people.

Personally, I really did not like the idea of having student loan debt, so I chucked most of my excess capital to the debts. I still funded a regular brokerage account and a Lending Club account, but I probably contributed $500 a month to those accounts. On the flip side, I was funneling $2k+ a month to the loans. I paid the loans off in about 3.5 years, approximately 6.5 years early, and jumped over thousands of dollars of interest payments. The student loan interest rate deduction didn’t do much for me, as I was phased out of it, and I would go nuts every time I saw the outstanding balance on my loans.

Advantages to Paying Off Loans Early

I can think of a few advantages to paying off the loans early vs playing interest rate arbitrage, but they are more reasons for psychological health than anything. If you are very debt adverse, fiscally conservative, etc, you will likely sleep sounder locking in the guaranteed return of paying off the debt. It will shore up your balance sheet, making you more credit worthy, and once you pay off that loan it will free up cashflow.

If you go by historical rates of return it will not yield the biggest bottom line, but I am not sure most people will really notice a huge difference.

Advantages to Investing and Not Paying Off Loans Early

As previously mentioned, the main advantage to not paying off your loans is it frees up money that can be presumably invested at a greater return than the interest rate on your student loans. Thus, you net the difference in interest rates and ultimately wind up with more money at the end of the day. Some people have used this to great effect, making the minimum payments on their student loans and using their cash to buy real estate at the trough of the market. Hats off to them. If you have the ability to truly find a superior return elsewhere, then the math dictates this is the best outcome.

Also, if you were to invest money in a brokerage account you could presumably sell your positions easily and free up the cash in the event of an emergency / amazing opportunity / etc. This is called having “liquidity”. Once you pay the bank you will never get that cash back (unless of course you take out another loan). This liquidity argument can be another benefit to investing your excess cash. Of course, if the stock market takes a nose dive you aren’t going to want to cash that investment out anyways, so practically speaking I am not sure how much water this argument holds.

Consider Where You Are in Your Loan Payoff Schedule

Again, if you have just graduated and started paying your student loans, then it makes the most sense to chuck extra money at the principal. This is because when you start paying down a debt with interest, the interest is front loaded and most of your initial payments go to interest. Contrast this with getting to the end of the loan, where most of your payments go to principal.

If you are on the fence between paying off early and investing, then see how much of your payment is going to interest and how much is going to principal.

If you are already 5 years into a 10 year loan, then maybe you don’t want to be so aggressive as you have reached the tipping point and more of the payment is going to principal than interest. If you are at the very start of your loan, then now is a great time to make extra payments to minimize your interest expense.

Personally, it really pissed me off to see 75% of my payment go to interest. That was like money out the window. I wanted to throw extra at the principal to get that number down. Then again, I was pissed off at the tail end of the loan too. I’m just an angry person when it comes to unsecured debt.

Student Loans vs. Savings – Final Thoughts

While there is no perfect answer, I think utilizing tax advantaged accounts is important. If you can afford to save, you want to start saving something – especially if it benefits you from a tax perspective. The net gain will be higher, and you can never go back and claim the benefit of these tax deductions for prior tax years. Might as well carpe diem.

My Roadmap to Financial Independence

One of the best parts about starting this blog is forcing myself to crystallize ideas and enumerate goals. They say the best way to learn a subject is to teach it, and in a way this blog is forcing myself to learn how to be financially literate by attempting to explain it in the form of a blog post. Good stuff.

Over the past 6 months I have written articles about all sorts of random things; from investing in commodities to grooming tips. The focus of course is personal finance and the pursuit of financial freedom, but until now I have not explained to the reader (or myself) exactly how I plan to get there and what the dollar amount goal is.

I think spending time to flesh this out is especially important after paying off my student loans. That was the real goal for the past few years of my professional life, and now with the loans paid off my mind has been searching for the next step.

I have known that next step is to acquire more assets and reach financial freedom. To be able to walk away from working a 9-5 job as a small town lawyer – if that is what I really want to do once I get to independence. To have the freedom and autonomy to step away from the chaos and to pursue whatever it is I was meant to actually pursue. And who knows, maybe I was actually meant to pursue being a small town lawyer.

Let me caveat things by saying that I don’t hate my job. I work for myself, which is something many people apparently want to do. I also make pretty good money. At the end of the day I like the idea of more options. Right now as a lawyer I am primarily in the time for money business. I can leverage employees a little bit, but by and large my ass needs to be billing hours to make a paycheck. It’s not particular efficient. And when you are in business for yourself it seems like you are always working. Add in the fact that the work is typically fast moving and stressful, and I definitely want to create some options for myself.

While I have discussed some of my investing philosophies tangentially I want to spell out my entire approach to the goal of reaching financial independence – and then get there. I want to get as granular as I can about this. I expect this post will serve as reference for myself, and will be updated and evolve as my approach evolves. I am at the beginning of the journey and don’t pretend to be a guru on the mountain top. I’m the joker down at base camp. My debts have largely been paid and I’m well provisioned for the time being, but I got a steep climb ahead of me.

The Goal: $1.5M in Liquid Assets and a Paid Off House

I don’t think $1.5M (in today’s dollars) is my minimum amount to be Financially Independent, but it sounds like a good safe number. Assuming a conservative 3% withdrawal rate that is $45K a year.

Based on my current levels of spending this number is more than enough to live off of, especially if that figure doesn’t include a mortgage payment. Luckily here in Florida home prices are still somewhat reasonable compared to other parts of the county. They have risen substantially in the wake of the recession, but it’s entirely possible to get into a decent single family home for under $250,000. You could go much lower.

I could live in my rental condo, which currently has a small mortgage and an annual burn rate of approximately $4,500 if you just look at the condo fees, taxes, and insurance. That number does not include maintenance. To be conservative we could budget 5% a year in maintenance based on a fair market value of $75,000 would be another $3k or so, putting me well below $10k a year for housing. Most will argue that is pretty ridiculous, but that is the potential benefit of buying a 1 BR condo vs. a $300,000 McMansion like many of my peers are now buying.

Of course renting could also be an option, but since I rent my condo for $12k a year, it probably makes more sense to own the unit outright than rent it if the plan is to stay where I am. Maybe that will change in the future depending on the market and my housing needs. Renting vs. buying would certainly be a big consideration for most people planning for Financial Independence. For now I’m going to plan on owning a place. I want $1.5M in the bank and a mortgage free domicile of some sort.

Looking at my $45k budget a little further, I wouldn’t have some of the expenses I currently have as an “early retiree”. There would be no expensive suits, Allen Edmond’s shoes, not as much need for a reliable car (so less gas, maintenance, insurance). I wouldn’t need to pay for disability insurance as I would be self insured. I’d probably qualify for some sort of subsidized health insurance (although I am already on a high deductible plan, and as a health 30 year old man my premiums are not much at all). I’m already living pretty cheaply, but there is always fat to trim when you can exchange time for money and don’t have to show up to the office with a fresh shave and $75 shirt.

Of course if you are really going to do this you have to see what your historical spending is. Otherwise pulling a retirement budget out of your ass is going to be of little value, and at worst can be reckless. I use both Mint and Personal Capital to track spending. Looking at Personal Capital it states that I have spent $32k for 2016 (as of 07/02/2016). Of that $32K, approximately $20,000 has gone to student loans. However, this doesn’t tell the entire story as my law firm pays for certain things (my cell phone, computer, some meals, etc.). Also, some of the expenses listed in Personal Capital are expenses for my income producing website and rental condo. Using rough math I would peg my current actual annual spending around $20k, which includes rent and does not include paying my educational debt.

So this is something I’ll need to refine as I get closer to a target date. For the time being I’m fine with my $1.5M target and annual budget of $45k.

The Plan To Get There

At the end of the day the plan is pretty simple. Save the majority of my income, and divert it to a diversified portfolio of stocks and bonds. My strategy is to dollar cost average my way into the market by automating the purchase of index funds on a weekly basis, to maximize the use of tax advantaged accounts, to use low fee index funds and manage my own money to preserve as much of my capital as possible from expenses, and to let compounding do its thing.

The question is, how long will I need to let compounding do its thing to reach $1.5M?

One of my goals for 2016 is to save half my income. The way I plan on doing that is to first make a pretty decent income. Lets face it, for most people there are fixed costs in life – housing, food, transportation, and utilities. These can get minimized, but most people are going to have to spend some money to live – lets say $25k a year. That’s probably what my budget is. If you make $60k there is more meat on the bone (or fat to trim) than if you make $30k a year.

I then track my expenses closely by using both Mint and Personal Capital (of course any sort of budgeting software, or just a spreadsheet, will work), and attempt to minimize those expenses. From housing, to insurance, to food, my cell phone bill, to the kind of razors I buy, I do the best I can to cut away the fat while still living decently. Having been a professional student for the first 26 years of my life, I’m used to living more or less like a bum. As long as I had a bed to sleep in, a laptop, and cold beer in the fridge I was cool. My goal is to continue to live like a student for as long as I can get away with it.

In some instances there are easy wins, like cutting cable, switching from a $100/month cell phone plan to a $30/month one, not eating out so much, not going to bars often (or buying much alcohol in general), having cheap hobbies, riding a bicycle, fixing things yourself, buying used vs. immediately going to the store, etc. And then there are big wins like downsizing your house, moving closer to work, taking on a roommate, not buying new cars every 3 years, not buying cars at all, delaying having children, not having expensive pets, not taking on credit card debt, using airline miles to travel, exercising regularly, etc.

My biggest expense by far for the past few years has been student loans. $2-3k in student loans each month. God I am happy to have those things out of my life.

To get back to my question, assuming I make 100k a year, save 50k on top of my current “nest egg” of $75,000 and assume an inflation-adjusted historical return of 7% I should reach my 1.5M number in 15 years.

15 years doesn’t sound too bad, but I’d like to try and accelerate the process and also develop some other income producing assets. Namely real estate and income producing websites. That way I can “really” have financial independence. I think for me I will want to continue to have money come in. Cash flow makes the grass grow, and the thought of just living off of stocks and bonds, while totally doable, doesn’t 100% appeal to me at this point. I want to have a couple sources of income and let my investments grow to provide a wider margin of error.

Real Estate

Real estate has proven itself to an attractive investment for a number of reasons. Those reasons include:

  • Leverage
  • Cash flow
  • Appreciation
  • Tax advantages (depreciation, write offs, no self-employment tax on the income)
  • Hedge against inflation

I have witnessed the power of real estate by observing my own parents, representing wealthy landlords, and reading books on the subject. Bought right you are supposed to make money on day one with real estate and can achieve a superior return with a disciplined approach. I can see the power of real estate with my one little condo that I am renting.

The only problem is, the market is a seller’s market now, and unless I work hard to hustle up deals then I won’t get an adequate return by purchasing properties at retail prices off the MLS. That’s OK, because I don’t really have any money to spend right now anyways. In fact, I just spent most of my liquid capital paying down my loans.

I have plenty of excuses and only one property right now, but I’ll close this section out by saying real estate is on my radar and I’m building up a small war chest with the goal of scooping up some more properties when the time is right.

Income Producing Websites

Not many personal finance bloggers will blog about using income producing websites to reach financial independence. But the dirty little secret is that the successful bloggers make good money with their sites. That’s OK. I don’t have a problem with people making money, and I think successful bloggers can choose to be compensated for their work like anyone else. But I also think this is an interesting approach that can help you pursue financial independence.

For example, my main money making affiliate site nets about $1,500 a month. That is 18k a year. If you ascribe to the 4% rule, you would need to build a portfolio of approximately $500,000 to generate $18k a year in investment income. That’s pretty powerful.

Of course there are risks to building websites, and you have to pay ordinary income tax on the earnings (and self employment tax at that typically), but if you know what you are doing and have diversified your income, I think income producing websites are a hell of a lot better than working a part time job, owning a franchise, etc. Certainly the semi passive income from a website is better than exchanging time for money. As a lawyer I can tell you that gets old quick, as I only have so much time (and energy) to give.

Plus, there is something undeniably powerful about being involved with the internet. Owning a couple websites have changed my life. Not only has it provided an income stream that will get me to financial independence faster, I have learned a ton of skills that I have applied to all sorts of things. It has completely changed me as a person. It has also allowed me to form relationships with people that I wouldn’t have otherwise met.

Being involved with the internet also keeps you current. If you don’t keep up with technology, you will grow obsolete. It’s sad but true and I have already observed some of this in my very short professional career. As an employer I am looking for people that are technologically savvy. I can teach someone how to do the specifics of a job, but I can’t teach them how to use a computer.

Keeping a finger on the pulse of the internet by forcing yourself to build and market a website is a great way to develop these skills.

I think MMM did a great job articulating this point through his post. He is totally right. If you invest the time in learning how to use a computer, and I mean to really use it to create something cool, not just fuck around on Facebook and pretend to work your 9-5, then rewards can be millions and millions of dollars. The computer and the internet is literally the difference from me working for someone else, and making low 6 figures after 3 years of starting my law firm.

And guess what, there are people that use computers a hell of a lot better than me. We all have the potential to double, triple, or 10x our output. It’s just a matter of thinking critically and taking action.

Now that I have made a case for income producing websites, I’ll talk a little more about how exactly they fit into my plan. I plan on continuing to grow out my existing main site (by writing articles and hiring writers to write articles – I am already doing this).

I don’t see myself building another income producing site from scratch (unless I was extremely passionate about the subject matter), but I may purchase other websites. Like any asset class there is a market for income producing websites, and the price is based on the relative risk and the earnings.

Fair market value for a quality website seems to be 25-30x it’s monthly net earnings. So a website like mine making $1,500 a month would sell for somewhere in the $35-45k range. A $100k website selling at a 30x multiple should spit about about $3,300 a month. That is basically 3% of a million dollar portfolio, and could conceivably be an income replacer for some people. It’s pretty cool that you can theoretically buy an income stream like that for $100k.

So perhaps purchasing an additional website or 2 is in my future. While I don’t like the idea of subsisting off a website without any kind of nest egg, this could be a great tool after reaching FI to allow my portfolio to compound without having to tap the principal, or potentially allow me to “semi retire” from practicing law at some point.

In closing, the FI and internet marketing / blogging crowds have a lot in common, and I think a lot can be learned from these 2 communities. The internet will definitely play a role in my plans for financial independence.

Final Thoughts

If I follow this plan Financial Independence is inevitable. Even if I skip the real estate investing and web development stuff, Financial Independence is inevitable if you save a significant portion of your earnings. At the end of the day, this is just a simple formula. It’s how much you save (invest) vs how much you spend. If you save substantially more than you spend, and do that long enough, eventually the income and growth from your portfolio will replace your earned income. It’s that simple.

Then again, losing weight is also simple. It’s calories in vs calories out. Yet so many people struggle with their weight (myself included). The key is consistency. The good news is we can automate a lot of our financial lives. We can make saving painless by having the money automatically withdrawn from our accounts. I only wish I could automate my ass into the gym every morning.

I am at the beginning of my journey for financial independence. If I approach this from purely a stock portfolio perspective, I expect to get there in about 10 years. At this point I think I’ll be able to save more than 50% of my income if I continue to make as much money as I am making, and don’t fall victim to the traps of consumerism and luxury. I feel strongly about reaching FI today, but I suppose anything can happen. The world owes you nothing.