My extra income adventure: A New Series
I am going to be kicking off a new series on this blog. I have been interested in producing some extra income in my life in order to help to pay for the down payment for my house. I have often looked into passive income ideas and it seems like most of them are anything but passive. Passive income is income that you don’t directly trade time and labor for money. Examples would be royalties, or licensing etc. Although my book would fall under this category I don’t have any delusions about making millions of dollars from it. (although it would be nice)
I had considered getting a second job, but didn’t want to give up time with my children who I only see 3 hours a night as it is. So, one of my qualifications for these ideas is that I am not simply trading my time for money directly. (I will do this job for x dollars) I hope to find other ways to work once and make money over and over with that work. I plan on doing some of this by outsourcing some of the work that I can’t do, or don’t have time to do. If I do my calculations correctly the Virtual Assistant (VA) should pay for themselves.
I have some money that I am able to invest in business ideas to capitalize a few of them, which makes me fortunate. If you want to see this done with almost no money check out UpwardsofTwenty. He is starting with $20 dollars and investing in interesting ways to grow from that $20 to where ever he ends up.
My plan is to start with some small ideas that I can put into place once and make more than an hourly wage in the process. I am not going to throw my money at any get rich quick schemes, that would be bad steward ship although even those crack pot ideas have real extra income ideas as their kernel of truth.
After I have completed my first venture I will update you with the plan I followed and the money I made. I plan to be as open and honest as I can with this part in the interest of transparency.
In order to keep myself sane I am going to look at any money invested that loses money as the cost of education. I find that I am very hesitant to take risks but hopefully I can break myself of that mindset with some small victories.
Betterment Review
I have been using Betterment since February of 2012 for my long term investment and savings. I have wanted to do a Betterment review for a while but wanted to break it in before I gave my opinion. Betterment is a website that makes investing simple enough for everyone. It makes investing stress free and easy. I have tried picking my own stocks but fees ate up whatever profit I may have gained. Betterment’s fees are incredibly low and they allow you to set a risk level you are comfortable with for all you different savings goals.
Getting Started
If you are trying to save money you know now is a bad time. Low interest rates are great if you are looking to buy a house but if you want to save your money low interest rates are not your friend. Unless you have 50,000 or more to invest a lot of firms won’t even talk to you. This is one of the reasons I love betterment.
Betterment breaks down your accounts by the goal you are looking to achieve. So, when you create a new account it will ask you to select a goal. Like Safety Net, IRA, Educational.
Then you simply answer a few questions about your goal. How much would you like to have in that goal at what time? Do you need 20K in 10 years for a child’s education? How much can you start with? Based on those questions Betterment will recommend a portfolio on a simple Stocks(Risky but rewarding) v. Bonds (More secure but less reward) scale. So, for our down payment goal which we hope to use in the next few years we are less risky and have 80% in bonds but in our daughters college accounts which won’t be needed for 10 years at least we use 80% stocks. It will also tell you how much you need to deposit each month to reach your goal and that can be automatically done through Betterment as well and automatically drafted from your selected checking account.
Customer service was remarkable when I called Betterment to see why I couldn’t have more than three goals. (This was early on the now allow many more) I got a real person almost right away who was very helpful and got me into the beta test for more goals.
Returns
So far the best thing about Betterment besides the automation, which I am a big fan of has been the returns. Keeping in mind that past performance does not indicate future performance and all that we have had some great returns for our the college funds. The total balance has some more conservative accounts like our house down payment account but over all I have been very please with the returns. The functionality of the site is superb making it very easy to get started saving with more than .25% interest rate or whatever banks offer these days. They even let you try it out for 30 days free.
Our overall rate of return has been 8.7% but our college funds are over 17%.
Fees
The fees are simple and inexpensive as well.
- If you deposit less than $100 per month it is a flat $3
- If you auto deposit at least 100$ a month your fee is a flat .35%
$5000 = $1/month - If you have $10000 or more across all of your goals your fee goes down to .25%
$10000 = $2/month. - Over $100,000 in all of your goals and your fee is only .15% and you get many other options to customize your plan.
Over all if you are ready to make the move into having your money make money for your Betterment is a great way to get started.
This article contains affiliate links… You get $25 and I get $10 if you sign up through these links…Betterment
Extra Income, what should I do?
To Pay or not to Pay (off your debt)
I get a form of this question all the time. Should I pay off debt or invest it? Paying off existing debt is a safe bet. Think of it this way, if you are paying 19% on a credit card then by paying off that card you are saving 19% interest. That is money in your pocket every month that you can use to pay off other bills or start investing.
If you debt is low interest and/or tax deductible you may be better off by paying your monthly minimums and investing the extra money you have. Here is why..
Using debt to make money
Imagine if I told you that I would pay you 100$ tomorrow if you loaned me 90$ today? Suppose that you didn’t have 90$, but you could borrow it from a friend and pay him back 95$ next week. You would make 5$. You can do the same thing with your debt if you have a solid investment plan and some time.
According to most resources, the average return from the stock market over the long term is between 7% and 12%. If you are paying 4% on your mortgage, for example, you could take extra money and pay off that debt or you could take the same extra money and invest it. Sure, you would be paying interest on that money, but over time you will make more money investing. There would be some months where you may not, if the stock market has a bad run, but over time you should make more money.
This type of decision is not to be entered into lightly. Previous performance is no indication of future performance. That means that the stock market could make 1% over the next 30 years and you would lose money.
Additionally, it may be more important for you to be out of debt and play things safe. You may want to leave the rat race and start your own business. This is why I normally tell people to pay off their debt. It is the right emotional choice for most people, but it is possible to make more money and possibly pay off your debt sooner with the proper investment strategy.
The chart below shows the difference in total value over 30 years when you invest at a conservative 6.5% instead of paying off a mortgage that has a rate of 3.5%. The numbers include the equity in the home as well as investment income. Once the mortgage is paid off the money that was being used to pay off the mortgage is then invested at 6.5%
Of course, there are many assumptions involved in these calculations. Your particular situation may be different, but many people have never even considered the benefits of not paying off their debt.
This is for informational purposes only, everyone should do their own investigation and due diligence.