Clicking My Way Into Making Money 201

While we wait for the other 6 MITs to follow Diane’s lead, with her excellent post based on my Finding Your Growth Engine exercise, Jeff – our newest Millionaire … in Training! – welcomes us into 2009 with some insight into his own money-making plans …

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Making Money 201 is all about focusing efforts on increasing your income so that you can build wealth and make some headway on achieving your Number.

Being in the military affords me a nice and steady income (which I’m thankful for these days) but it doesn’t give me much of a chance to earn more by working harder or smarter so that I can earn that big promotion at work.  Nor can I focus on growth opportunities for the organization to improve profitability and earn more through profit sharing or bonuses.  This means I need to find an alternative, separate from the military to pursue new profits for my family.

But what should that be?

My required annual compound growth rate is approximately 38% to reach my Number.  I expect to use stock and real estate investments as well as some type of small business to make that happen.  I have more detailed plans for stocks and real estate that I’ll share another time, but today I’m going to focus on my options for a small business.

Ideally, whatever I pursue should be as passive as possible.  I’m not afraid of hard work, but my time is my most precious asset.  The more income streams I can generate that require little or no time/effort to maintain, the more wealth I can produce as an individual.  I think of this as leveraging my time.

Another reason I’m chasing passive income streams at this point in my life is that being in the military is a full time job that doesn’t leave me much room to head off in my own direction.  If I find the perfect business opportunity, I’m not at liberty to “quit” when I decide.  Therefore, my efforts need to fit with my present situation and service obligation.

My final reason for chasing passive income is that I have some big dreams I want to pursue on a full time basis as soon as possible.  Yes, I understand the point of our exercise is to achieve the Number so we can retire and fulfill our life purpose stuff.  But I think I can get on with it sooner than 10 years from now if I can generate sustainable passive income streams to live off of.

Currently my passive income efforts revolve around:

- Real Estate investment – One of my 2008 goals was to begin investing in real estate other than my primary home.  However, the Navy changed my real estate investment efforts and that goal with orders to Boston, MA.  I’m going to be managing the Navy’s recruiting efforts in New England.  Drop me a line if you want to join up.  Because of this change in plans I’ve had to defer my goal just a bit, but will still be a real estate investor very soon, I’m just going in through the back door.  I have renters lined up for my VA Beach home and am closing on a house in Boston at the end of January.  The Va Beach home is renting with positive (and passive) cash flow and the Boston house is a foreclosure that I’m picking up for $200K below market. 

- An Internet approach – As I mentioned above, I need a business that I can fit into my military career.  The Internet is everywhere.  It never sleeps and my online activities can be tailored to my schedule.  I can devote some time over lunch, during my commute on the train, or even while on travel and in the evenings at home.  Thus the title of this post, I’m trying to click my way into increasing my income.

I think of the internet as a big river money just waiting for me to dip a bucket into.  I am using several approaches to try and scoop my bucket into that river.  Mostly centered around advertising and internet marketing, I’m using several blogs (I have ten right now) to target specific niche markets.  The idea is to drive highly targeted traffic to the niche blogs which contain Google advertisements and related affiliate products.  Traffic = Clicks = Advertising and Sales Revenue.  So far the websites are paying for themselves, and I continue to build content and generate traffic via backlinks and search engine optimization.

I’m also dabbling in running targeted Pay Per Click ads (they are at the top and right side of Google’s Search results) to sell affiliate products.  I paid for an online course to learn some of the in’s and out’s of PPC, but have only lost money so far in this area of Internet Marketing.  I’ve suspended my PPC activities for now because I need all the cash flow I can muster to finalize my real estate deals in the end of January.

For now I’ll just focus on my niche blogs since I’ve got that breaking even.  I’ve heard “stories” of folks on the internet using this approach to make several thousand dollars per month.  I’ve only been at it for three months now and am making whopping $45/month from my ten blogs.  It’s not much, but I see the potential.

The idea is passive income from military retirement (someday), real estate rentals, and internet income so that I can really begin to focus on what I view as my true business opportunity…building an Air Taxi business.

You knew it had to come back to flying at some point didn’t you. 

In the mean time…Click Baby Click!

The Revision of The Number…

Scott has found the intersection between his Life’s Purpose and the Real World: it’s called his Number and he has just realized that his dream needs to be modified slightly to avoid it becoming a nightmare …

Well folks, i’ve gone over it and over it time and again and guess what?  I’m realizing that at least for the moment, I can’t justify the number I set forth previously for myself of 10 million dollars.  The reason being is simple. First of all, it seems a lot of what was driving my number was to run a “Free Clinic”  and all the monthly costs associated with such a venture. The trouble is, in order to run a clinic like this, it is going to require just as much “work” ie; busy work, rat race, (enter Robert Kyosaki discussion of choice) as I do now, because even a free clinic has to be marketed and how on earth am I going to be able to take mission style trips abroad to help those less fortunate as well as take personal family time vacations I desire as well as have the freedom I desire if I personally have to run this clinic.

Instead, i’ve opted for owning a clinic that does accept pay, insurance assignment, etc.. however provides extremely generous ‘discounts’ to those who genuinely cannot afford to pay and meet certain financial eligibility qualifications or rather hardship qualifications. This will enable those that need and want care but truly cannot afford it to have the ability to receive it. Plain and simple. What this also does is allow me to have another doctor, or doctors to effectively “run” the clinic, handle the insurance issues, paperwork, etc… while I don’t!!  But it gives me the freedom as the owner to come and go as I choose, when I choose as well as have other, well-paid individuals to deal with paperwork, insurance chasing, etc..     all the things I don’t want to do, while I get to enjoy the things I do want to do, which is the doctor/patient relationship, patient education and patient care!  Why you ask, don’t I set my clinic up that way now? Simple, because doing the marketing, the paper work and the other ‘rat race’ tasks myself keeps my overhead low and my profitability high and is what generates my high income at the moment. The income necessary to fuel real estate purchases and other investments that will help me achieve my number, hence, my Life’s Purpose. Once this clinic is established the way I want in the future, it will not be very profitable, in fact it may just barely make overhead after additional staff and doctor’s salaries are met, and will produce me no profit, but essentially ‘pay for itself’ and help me live the purpose of helping others while having freedom from “work” and the freedom to travel.

I think another thing that would drive my number up would be a desire to live in a multimillion dollar home. However, my wife and I have no intentions for the moment or desires to purchase more home than we currently have. We just recently purchased a horse estate just outside of Louisville that we absolutely love.  It is a 100+ year old, former plantation farm that has basically been about 70% renovated, and really just needs a few other projects completed as well as some cosmetic restorations and a barn renovations. We basically got this house for about half of what other similar horse farms have sold for in the area because most people can’t look past cosmetic work(some of which i’ve already completed myself this year for little or nothing) that needs to be done and I think this real estate market and the drop in acreage prices have helped out as well. We got the house for 325k and plan to spend around 200k total on it completing all restorations to make the house COMPLETE and when done, it will be an absolute gem and should be worth around 800k(in today’s dollars). Our total investment in doing this will be around 525k. This is in rural Louisville, KY numbers. Pick this house and land up and drop it in Southern California where Ryan lives, or in Chicago where Adrian lives, or even in NY near Josh and I guarantee you can easily double or triple its value. So as you can see, we feel no need to purchase another or spend 3 million dollars(3 million spent here would get you an Evander Holyfield estate with 27 bedrooms and with an airstrip on it, lol).

Also, we have no need to purchase brand-new cars. We do however desperately want to drive nice, expensive, high performance cars(a 911 porsche turbo has been on my dream list as long as I can remember. Just as Josh desires, but in my research, one can be obtained for 50-65k) and my wife and I love BMW.

I think what has stuck in my brain is what Adrian has tried to stress several times which is: What is the BARE MINIMUM that you NEED/WANT in order to live the life that you NEED/WANT? Right now, I just don’t desire things that necessitate 10 million I guess. The extra would be nice but who knows, that could all change in the future, right? I’m sure later I may desire more. But I figure if I can make this number happen, why couldn’t I reset in 10 years, and make A NEW NUMBER happen from that new starting point if I get bored being “retired” and want to put the gloves back on and climb back in the ring? Hey, it worked for Bernard Hopkins at 43 years old a couple of weeks ago!

Anyway, with all this realization, this brings me to our new Number:
One-Off Expenses

Housing needs:                          Today:                           Total needed in 10 yrs(inflation adj):

Pay-off current mortgage:                323k                                 271k left(according to amortization schedule)

Renovations needed:                        200k                                300k

Student Loan Payoff: 140k                                102k left in 10 years

Vehicles 100k                                150k(then replace these every 8 yrs or so…)

(for used Porsche Turbo, BMW 7 series and farm equip. needed as well as investable assets to replace every 8yrs or so)

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General Yearly Costs

General monthly living costs: 48k                                       72k

(gas, electric, insurances, groceries, nutrition supplements, basic

dining & entertainment, gifts, horse and other animal care, etc..)

Travel Abroad to Help Patients 16k                                      24k

(2,  1 week long trips @ 8k each)

Travel for Pure Enjoyment 20k                                     30k

(2, 1 week long trips @ 10k each)

Additional Gifts 5,000.00                           7,500.00

(above what is budgeted in living expenses already)

Philanthropy 12,000.00                     18,000.00

(above what is budgeted in living expenses already)
Car Maintenance 4,000.00                     6,000.00

(estimates for upgraded cars above what is included in living expenses already)

Additional Car Ins. Premium 2,400.00                  3,600.00

(Ditto, above)

Total:                                                     107,400.00                 161,100.00
161,100.00 x 20 =  3,222,000.00 + total of one-off expenses above(823,000.00) =

New Number of  $4,045,000.00 (Multiplied by 20)

$5,656,000.00 (Multiplied by 30)<==================This is what i’m going by for now

$6,444,000.00 (Multiplied by 40)

The Elusive Number

Photo credit: THEfunkyman

Mark illustrates, in a practical way, the dilemma faced when considering one’s future from the perspective a young, single person who only needs a bag, a small stipend and some travel vouchers to be truly happy v. the family guy who needs the Gucci luggage and all the trimmings … well, not quite, but you get my point …

When we were first asked to calculate the number, I did use the spreadsheet provided here. I did plugged in some formulas to account for inflation for both income and expenses. There are a few major purchases like a home, vacation home and transportation (car only). I was happy with the number since the total matches my original number in the initial application but it was for a slightly different time frame; 7 years vs 10 years.

However, as we did more exercises like coming up with a Lee’s List and refining the spreadsheet, the number did change. For example, in my previous spreadsheet, I did not factor in life events – for example, being married and having kids. I did account for the increase in life expenses but I’ve failed to accommodate new travel expenses. The travel cost ballooned quite a bit after considering additional seats to fill in and the need for larger an better accommodations. Hostels will not work for family, for sure. The original spreadsheet did not account for some of the items in the Lee’s List that we have been working on. I need to add seed money for an Education Foundation as described here.

I did use the Rule of 40 rather than the Rule of 20 for some reason. I think there is some fear of falling short but we will examine both scenarios. The huge buffer might be able to accommodate the additional travel needs, and Lee’s List items when using Rule of 20.

I did calculate numbers for 10 years and 20 years out but I settled for 10 years to be more aggressive. If I didn’t meet my number , I can have another 10 years to do so. Here are the major items in the spreadsheet:

1) Houses

Primary residence: $400,000 (in 5 years)
Vacation Home: $350,000 (in 10 years)

2) Cars

Used car #1: $30,000 (in 5 years)
Used car #2: $45,000 (in 10 years)

3) Travel

There are some elaborate calculations on the spreadsheet. It covers one destination in Asia, one other international destination and some domestic travel. I used the number for the future scenario of being married with 2 kids. The number in 10 years will be about $31,000

4) Living Expenses

The living expenses for the projected scenario of being married with 2 kids in 10 years is around $123,500. This is based on an inflation adjusted rate of 4%. We might be facing higher inflation rates but I hope the number calculated using the Rule of 40 can catch cover this scenario.

5) Items on Lee’s List

Education foundation: $500,000

Items in 1, 2 and 5 are one time cost items so we are not using the Rule of 20 (or 40) on these items. The total for one time cost items is $1,325,000.

For Travel and Living expenses, we have a total of $154,500. Using the Rule of 20, we will need $3,090,000.

The final number using the Rule of 20 will be $1,325,000 + $3,090,000 = $4,415,000 and if we round it up, it will be the same as my previous numbers at $5,000,000.

If I’m using the Rule of 40 instead like I did the previous calculation, it will be $1,325,000 + $6,180,000 = $7,505,000. So what will the Rule of 40 gives us over Rule of 20 besides having a higher number?