A new goal : $300 monthly passive income by year end
Over the Memorial day weekend I had an interesting talk with a family friend regarding this blog and some of the personal finance and investing topics posted here. After a long discussion and based on his experiences I started looking at some of my financial goals a bit differently. This resulted in a new personal finance goal, which was to have $300 of monthly passive income by the end of this year. So why this goal and not stick to a more standard goal like reduce debt by $X dollars or increase investment portfolio to $50,000. Well because I believe the passive income goal supersedes these goals. This does not mean that I don’t have a budget or an investment plan; it’s just that there is little point in budgeting and investing activities if I didn’t have a target as to what the final result of all this money management would have for me. In fact setting a passive income goal means that I can work backwards to know what my budget and investment targets should be.
Wikipedia defines passive income as “Income that is received on a regular basis, with little effort required to maintain it”. As I see it, having a passive income goal is the first step towards quantifying my road to financial freedom. Off course over the years my passive income should hopefully increase to the point where it will replace most, if not all of my salaried income meaning that I will then be financially free. What’s better is that if I can get my passive income to replace my regular income before I retire, the payouts from my 401K and other retirement accounts will be an added bonus! What a great financial situation that would be.
So how will I reach this target?
I classify passive income as anything that I earn on a regular (averaged) basis which is above and beyond my working salary. This includes dividend (investing) income, interest income from savings accounts and even side income from this blog. For most people investing and interest income will be the key sources of passive income. I am fortunate that my financial position is one where I have little debt and so can really focus on my passive income goal. Here’s my current monthly passive income status ($165 p/month) and my year end target ($300 per month) broken down by the various income streams.
- Interest income from online high yield saving accounts (HSBC, ING, and Vanguard Money Market funds) – Current: $120 p/month. Year end target: $170 p/month.
- Dividend Income from funds and stocks in my portfolio – Current: $40 p/month. Year end target: $80 p/month.
- Blogging income (unlike the other income streams, this does take some work. Though I enjoy doing it!) – Current: $5 p/month. Year end target: $50 p/month.
I will update my progress every few months and I urge you to consider having a passive income goal - even if you have debt. Not only is it a great goal to strive for, it provides a real way to measure your path to financial freedom, which is the end goal after all.
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May 29, 2008 12:06 PM
This is interesting. Here is a calculation for blogging income.
JD of the 'Get Rich Slowly' blog posted in Nov that he has $5k income with 35000 rss readers. Therefore, each reader is worth, 5k/35000 = $0.14 per month. If you have 65 readers, your income should be about .14x65= $9.10/month. If your goals is $50/month, then you need 357 readers.
May 29, 2008 3:45 PM
Curt - Thanks of all your comments today. In regards to your analysis, I think RSS readers is not necessarily an accurate figure to measure reader worth (though I am not an SEO expert). In fact I think as I have limited in post advertising most of my RSS readers are not really big revenue generators. Most of my ad revenue comes from site visitors clicking on adsense and affiliate marketing programs.
I have noticed over the last month an increase in revenue - mainly from adsense and 1 affiliate related sale. So I should hit about $15 this month.
I do like your RSS readers analysis though and will keep it on my blog tracking spreadsheet to see if there is a direct correlation with RSS readers and revenue. I was more tracking visitors and revenue etc. I also need get better at online marketing, so learning as I go along. It is very interesting to watch your site develop as well.
My target is 200 readers by year end and am hoping direct ad sales on the site make up a larger portion of the sites revenue as it grows.
Cheers,
Andy.
May 30, 2008 11:28 AM
I agree, rss feed readers are probably not clicking on your ads, but the number of readers are probably proportional to your rss readers. Therefore, I think this 0.14 per rss reader is perhaps a close estimate.
I'm going to create an article about this and some other calculations I have for the entire financial blogosphere, which looks to be growing at 6% per month.
My goal is to double every 3-months.
May 30, 2008 11:36 AM
Curt - Look forward to reading that article. Given you have a custom built blog (www.pennyjobs.com), you clearly are much more net savvy then I am. I am now looking at my RSS readers, visitors and revenue to monitor my site performance. Just furthering my blog stats addiction I wrote about earlier!
May 30, 2008 3:29 PM
Great stuff. How long did it take you to make 5/month blogging?
Your goals sound reasonable to me. Right now I'm trying to push my own income from dividends up to $100/month.
Thanks for the calculations, Curt.
May 31, 2008 3:48 PM
Once I got serious about this blog (about 3 months ago), I was able to make that in a month. With affiliate marketing and adsense I should hit about $20 this month.
Good luck getting to your dividend goals. Looks like you will need about $30K to $40K in underlying assets to hit your monthly goal.
June 6, 2008 9:47 AM
Thanks for commenting on my blog. I agree totally with your idea of monthly passive income.
There is no better goal to work towards financially!
June 7, 2008 5:00 PM
@ Kevin - No problems. It was good to discover your blog.
Also, thanks to Pinyo for including this in the 155th Carnival of Persoanl finance which was hosted at his blog this week.
June 9, 2008 11:12 AM
$100/month in dividend income translates into $1,200/year.
Depending on your yield you may need more or less money to start. If your portfolio has an average yield of 2% - you'd need $60,000 to start. Companies which yield 2% nowadays are closer to what an investment in a broad market index like SPY would yield. 2% growers could increase their dividends the fastest.
At a yield of 4%, you would only need $30,000 to generate the dividend income that you want. The growth rate would be slower however.
At a yield of 6% you need only $20,000. There are fewer choices and they would include utilities, reits, MLPs etc. You could surely go beyond 6%, but at the current market conditions, I would be hesitant.
As a side note, when speaking about dividend yield, I am referring to your portfolio's average dividend yield. Sure you could afford buying a 10% stock, a8% stock, a 6% stock, 4% stock and 2% stock. The AVG yield would be 6%.
July 1, 2008 9:05 AM
Nice site.
Those are great goals. Sounds like you've been reading Jeremy Siegel and Ben Stein.
Check out Frontline (FRO) unbelievable returns the last five years.
HCN is a health care REIT that pays well.
ConEdison (ED) in New York will be making money until the end of time.
Yes, even Bank of America (BAC), the country's second largest bank, and now trading at quite a bargain price giving it a yield of over 10 percent.
July 1, 2008 3:25 PM
DGI - Thanks for the detailed information. Great information to know.
Sirbeef - Thanks. I have heard of but haven't read Jeremy Siegel and Ben Stein. I'll check them out and the stocks you mentioned.
July 22, 2008 10:59 AM
Andy,
Thanks for taking the time to explain your goals. I believe that they are very achievable.
Good Luck in your endeavours!
July 23, 2008 9:42 AM
No problem DGI. I have already passed some of them. Look for an updated posts soon.
August 1, 2008 4:37 PM
I wish google hadn't bombed out for me...(long story)...I was at 150 readers and was already making $100 a month projected. This is a worthy goal and takes some time. I would suggest a few websites each focusing on a particular idea. This makes searches more stream line (SEO) and there are already 1,000's of websites such as this one where people talk about making bank by blogging. Maybe pick one of your hobbies and blog about that. Pick another one for finance, and another for...family? or the like.
August 4, 2008 11:45 AM
@ Ben - Thanks for the advice and you make some good points. I will look into it. Just hard to find much time for anything else with work, family, studying and this blog.
August 19, 2008 12:23 PM
I've written many articles on income investing... here's the latest one:
Income Investing: Go Ask Alice
Jefferson Airplane has never, ever, been mistaken for a band of financial advisors, but the White Rabbit lyrics can be incredibly instructional to the generation of investors who experienced the classic first hand--- as a description of their own college days' lifestyle. If only they had heeded the dormouse's call to "feed your head." For the sake of your retirement sanity and security, you just have to make income investing an intellectual exercise--- not an emotional one.
The Brainwashing of the American Investor has its own tale of an Alice whose "logic and proportion" had "fallen sloppy dead". Many years ago, when interest rates soared into double digits, elderly Alice was well advised to invest her stash in a portfolio of Ginnie Maes. Broadly smiling, she bragged to her friends about the federally guaranteed 13% interest she was receiving in regular monthly intervals--- much more than she needed to cover her living expenses.
But interest rates continued to move higher, and the decreasing market value of her Ginnie Maes was more than she could tolerate. "If rates continue to go up, I'll have nothing left" she cried to her White Knight financial advisor who suggested patience and understanding. The very same pill that made her income grow larger was also making her market value become smaller. But the income kept rolling in, higher yielding unit trusts were purchased with the excess, and major redemptions were nowhere to be seen. The income kept growing, the market value kept shrinking, and Alice was seeing red from seeing red on her account statements.
So Alice went to her local bank and traded in her absolutely government guaranteed 13 per centers for some laddered, non-negotiable, 8.5% CDs. "No more erosion of my nest egg", she toasted proudly with the hookah smoking bank caterpillar who orchestrated her move to lower income levels. Within a few months, she was liquidating CDs to pay the bills that never seemed to be a problem with those terrible Ginnie Maes.
Don't let such uniformed thinking sabotage your retirement program; don't let the selfish advice of a product sharpshooter send you chasing rabbits when IRE (interest rate expectations) or other temporary market conditions shrink the market value of your income portfolio. Feed your head; feed---your---head. Income pays the bills, and if the income level is both steady and adequate, there is no need to change investments. Market value should be used to determine when to buy more (at lower prices) and when to take profits (at higher ones). It is almost never necessary to take a loss on a high quality (government guaranteed in Alice's case) income security.
More recent experimenters in much more sophisticated potions have addressed the issue with similar results, reaching mind-numbing conclusions such as these: 1) I know the income hasn't changed throughout the debacle in the financial sector but I don't want to buy anymore of these securities until the prices go back above what I paid for them originally. Translation: I'd rather stick with my 4.5% tax-free yield than increase it by adding to my positions at lower prices.
2) Sure, I understand the relationship between IRE and the prices of income CEFs but individual bonds and Treasuries haven't suffered nearly as much. That's where we should have been. Translation: I would be much happier with a 3% than with an 8% rate of realized income. 3) I'm tired of seeing all the negative positions in my portfolio. Let's keep all the income we receive in money market until we're back in positive territory. Translation: I'd rather accept 1.5% or so, than reduce my cost basis and increase my yield by adding to my positions at lower prices.
Modern brokerage firm monthly statement "pills" were developed during the dot-com era, when Wall Street was trying to emphasize the brilliance of its speculative prescriptions by making us all feel ten feet tall, month after month after month---. But the geniuses on the institutional chessboard produced too many mushroom product varietals and the Red Queen of corrections has lopped off many of their sacred heads. The papers that were designed to make our chests burst with pride have turned on us as a haunting reminder of the reality of markets and the cycles that push them in either direction.
It should be easy to navigate a quality income portfolio through whatever circumstances, cycles, and scandals come at you, but a clear head and a clearer understanding of what to expect is required. Most brokerage firm statements make it difficult to monitor asset allocation using any methodology, including the Working Capital Model, and I don't think that it's by chance. Confusion breeds unhappiness, and unhappiness brings about change, and the masters of the universe encourage you to fritter around from mushroom to mushroom in perpetual motion. To who's benefit?
It would be wonderful if an investor's monthly statement would organize his securities based on their class and purpose, but Wall Street doesn't want such distinctions to be made easily. It would be great if the institutions would help investors formulate reasonable expectations about what to expect from various types of securities in varying conditions, but that's not likely to happen either. It would spectacular if the media would produce information and explanation instead of news bites and sensationalism, but you guessed it--- not much chance of that either.
Income investing can be easy. How many hookah-smoking caterpillars have given you the how?
Steve Selengut
http://www.sancoservices.com
http://www.kiawahgolfinvestmentseminars.com/
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
August 23, 2008 12:09 PM
Andy,
Congrats on your passive income goals. Have you considered selling text link ads? That could at least double your online revenues.
August 24, 2008 9:09 PM
I wouldn't say that the # of rss readers has any indication of how much $ you will make. SEO and proper ad placement is the most important in the conversion of your traffic. Sit back, enjoy a
hooka and learn about SEO, it will help a lot!
October 1, 2008 8:56 AM
It's great to have goals like that! How are you doing now? I liked the very first comment, too. I didn't know the "value" of a reader - 14 cents per month per reader. Interesting.
I'm coming in a little below that, so what this might be telling me is that I'm not maximizing opportunities?
I make about 9 cents per reader, by the way.
October 2, 2008 9:30 AM
Online dividends : Thanks. I do sell text link ads in a limited fashion. Since I got a Google page rank of 4, I seem to be getting more requests. Look for a post on this soon.
@ Bill spaced : Thanks. I am actually going to do an update very soon so look for that post. In terms of blog revenue I am doing well, investment returns are not that good. My RSS reader value has gone up over the last few months and is about $0.50 now. As your site grows and you write frequently, the revenue grows much faster than subscribers.
March 12, 2009 2:35 AM
I am really curious to see how this plan is going for you. When will you be writing an update?
March 28, 2009 7:53 AM
Dear Andy, Congrats for the great goal, I hope you could reach that target or even more. And I do not agree with Online Dividends about selling text link. Google will penalize site that sell link. I see your PR dropped to PR 3 now, I guess google had drop a value of our site. I hope that will not effect your site serp in Google or other search engine.
Wanna read a good news from you about this goal.
rgd,
Goonie
April 6, 2009 7:33 PM
Sorry for the delay in updates. Here is one as of March 2009:
1. With falling interest rates, my interest income is about $40 per month. This is expected with the federal rate near 0%.
2. Dividend Income has been shot as well. About $70 per month. Nothing to write home about as the stock market and credit crisis has forced many companies to cut dividends.
3. This is the big difference for me. My target was $50 month. It is actually nearer $2000 per month now. Really exceeded my expectations. More on this development soon.
For some other great passive income reads check out this recent article:
http://www.savingtoinvest.com/2009/03/10-ways-to-quickly-improve-cash-flow-by.html