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Hi! I'm Mike and this is my wife, Jen!  Since we began this site, we've learned to live more frugally, completely eliminate our debts, create new income, radically increase our net worth, and live altogether better lives!  Sign up below for instant access to our members-only toolbox, including our exclusive guide:  15 Steps to Fix Your Broken Finances and Live a Better Life!

Tuesday
Jul012014

The LTNE Report -- June 2014 (New Format!)

June is in the books and those of you who stuck around through our "slow period" of posting might have noted that we got quite a few posts up this month!  Even with everything going on, I'm going to try like hell to get a post up weekly.  

I'll be fiddling with these monthly reports for some time going forward as I arrive at what I want to communicate, so expect some ongoing changes.  

First off, I'm going to change the way that I report passive income.  When I used to report passive income, I'd follow a format something like:  Passive Income = (Internet Income (Affiliate + Cost-Per-Click + Advertising) + P2P Interest Income + Cash Rewards Income) - (Internet Expenses (Web Hosting, aWeber Cost, etc.).  From this point forward, I'm including our rental property in these calculations, despite the fact that what we charge from rent is less than what we pay for its mortgage and HOA fees each month (particularly after refinancing from a 30-year fixed rate to a 15-year fixed rate loan).  

Though the old way really focused in on the passive income that most people are interested in (i.e., making money online), it is an incomplete picture for our own personal finances and what we advocate for here on LTNE, which is multiple streams of passive income, so I'm making this change.  We will eventually pay off that mortgage and keeping this home as a rental will turn into bona fide (mostly) passive income, so I want that included in our reporting.

Plus, it allows me to set another short-term goal, which is to achieve a net zero passive income.  Since we lose money on our rental, I want to make up that difference with our other passive income streams, so I'm setting out to do that from here on out.

This also deemphasizes online income, because I just haven't been working too hard with this lately (note the dearth of affiliate links in almost all of my recent posts).  I'm going to continue to include some affiliate links when they are merited (like I have in this post!), but I want the freedom to write without having to worry about them too much.  All of that said, there remains an Amazon search box on the right side of this site that I appreciate you using if you are going to shop there anyway!  When I hit important thresholds for online-derived income, I'll parse it out more fully with separate posts. 

So, on to our Net Passive Income for this month, which includes all of our P2P interest income, online income, cash rewards income, and income from our rental property, minus hosting and other online service costs, mortgage costs, and HOA fees:

Next change:  as I pointed out in this post, I'm done using the Zestimate from Zillow for our rental home's value, as it is clearly (and profoundly) wrong and it has been screwing up our net worth calculations for far too long.  For reasons that I spelled out in the Zestimate post, I've established a $245,000 value for our rental home and I'll update this on occasion.  

I've normalized our net worth calculations using this new data and it finally shows what we've been doing all along, which is investing a ton of money that is showing up in our increased net worth.  We've increased our savings rate to over 50 percent and it is paying off.

In case you didn't check it out, I wrote a bit about earnings, savings, and time horizons here.

So, as far as net worth is concerned, we've now met our 2014 goal much earlier than I had originally forecasted, once we made the adjustment to the value of our rental home.  Woot!  Once our net worth exceeds the figures for an "above average" net worth of a mid-40's couple that Sam over at Financial Samurai wrote about here, I will likely no longer publish net worth figures.  Until that point, consider our net worth charts an example of going from a negative net worth to a positive one using our very basic principles of earning, saving, and investing.  (I'm interested in your thoughts on this, either in the comments or sent as a note.  My dad, for instance, doesn't understand showing personal "money stuff" on the Internet, but many have told me that they love the transparency, and others have advocated for something like "stealth wealth," but I'd love to hear your thoughts.).  

One note on net worth for our military readers (and others who will draw a pension):  I'm not including the present value of my forthcoming military pension in our net worth calculations, but I am including it in our own transition / first retirement financial planning.  For this internal planning, I'm using a formula from Doug Nordman's excellent post here.  

Anyhow, here's the new, normalized net worth chart that shows our progress:

I will continue as well to show how our P2P investing with Prosper and Lending Club is going.  As you can see, both are doing well, but Prosper is doing REALLY well.  I will try to get to the bottom of this if it is possible-- I might have just been really lucky with Prosper-- but something appears to be going on to account for the fact that Prosper is doing so much better for us than Lending Club.

One important point from P2P investing is that an approximately $20,000 investment is yielding about $300 in passive income each month.  I'm drawing down the principal now for our transition, but as I look to a period after that, I can definitely imagine sinking a sizeable amount of money into P2P investing and then using the monthly interest as a robust passive income stream (noting that there are tax implications with these-- as income gleaned is treated as regular old income, and is taxed the same way).  

Here's the latest comparison chart between Prosper and Lending Club (don't forget:  signing up using any of these links kicks a small amount of money to our site, costs you nothing more, and rewards our writing on the topic!).

I'll highlight other things in these reports as needed, especially when they illustrate something (for instance, our traffic numbers haven't recovered yet from Squarespace's (the service we use to create and host LTNE) algorithm change, despite picking up the pace of writing-- once they do, I'll point that out).

The #1 thing that you can do to help out LTNE is to link to it in your own blogs, like us on Facebook, Tweet about us, etc.  Check out what we've written for the last two years and, when you find a useful or interesting post, tell people about it!  In fact, feel free to click one of the social media icons below this post!  Thanks!

That's it for this month!  I hope this stuff is helpful to you, either as helping to cobble together your own plan, or as inspiration for turning things around, or both.  Enjoy your July! 

Friday
Jun272014

Earnings, Savings, and Time

In my writing over the last two years here at LTNE, we've spent a good deal of time talking about saving money.  We've sold a car to become a one-car family, cut our cable TV, replaced one of our cell phone plans with a very inexpensive home telephone solution, worked hard to save money with our grocery shopping, cut our restaurant expenses, worked to be intentional about spending, and on and on.  

All of this has made an immense difference in our savings rate, which has allowed us to dig out of debt and start some pretty substantial monthly investing.

But here's the other side of that:  we've also increased our incomes substantially over the last two years.  As much as we've talked about passive income-- and I'm a genuine believer in maximizing as many income streams as you can-- our active income has made the real difference between our old financial insecurity and our new, burgeoning financial security.  

I'm at the peak of my earnings years in the military and my wife returning to work has added another substantial chunk of monthly income that we can turn around and immediately invest.  These facts matter immensely.

At the apex of our internet-based passive income effort-- with all of the hundreds and hundreds of hours we'd invested into this site and our other ones, we only just approached the $1000 threshold in monthly passive income.  As a percentage of our monthly active incomes, this really is fairly insubstantial.  

In many ways, getting ahead financially really is a three-sided proposition:  you have to earn, you have to save and invest, and you have to have time.

So, is it possible to have a secure financial future with low earnings?  It will be tough, but if you have a long-enough horizon and you save enough each month, then maybe.

Can you spend a ton and still get ahead?  Sure, if you have a high enough income.

What about us?  We increased our savings rate each month to well over 50 percent now (and I'm trying to squeeze out even more!).  Where we suffered was in our time horizon.  For far too long, we had very little savings and investments, but we counted on the very worthwhile military pension earnings that we looked forward to, plus a sense that I'd leave the military and move fairly seamlessly into a high-paying job.  When we became less certain of that glidepath, late in the game, we've needed to really amp up both our savings and, where we could, our earnings as well.

No doubt, this is all common sense in many ways, but how many of us still bone it up?  

If you want to have a Scrooge McDuck pile of money to dive into at one point in your life, you'd better amp up your earnings, save as much as you can, and start early.  Don't forget:  this pile of money isn't an end in and of itself.  That pile of money represents freedom-- well, at least as much freedom as money can provide.

If you fail at one or more of these, the other leg(s) will have to make up the difference.  

If you have a low-income job, is there a path to a higher income there?  If not, can you get a new job?  If not, how else can you increase your earnings right now?  

If you are spending too much, what can you cut right now to increase your monthly savings?  Have you eliminated all of your soul-killing debt?  If so, is your money working for you now, with solid investments?

If you don't have a long time horizon, you're going to have to brute force your way-- right now-- to a better net worth, as you've already sacrificed the time value of money and need to do your best to make up for that fact.

As always, we welcome your thoughts in the comments!  

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