My pursuit of rental income, starting a small business, and participation in side hustles such as spreadsheet consulting and freelance writing are all direct results of one thing: my desire to fast-track my financial independence.
While I’m grateful for my full-time job and the security, income, and career track it has provided, I also know that it won’t likely fund the lifestyle I desire or give me financial independence anytime soon. Take-home pay is essentially capped at most corporate workplaces, and the higher up you go the more cutthroat the competition becomes for jobs.
What I want is to be able to have a cabin or vacation home. I want to travel often and have the money (and time) to do it. This won’t happen for decades unless I take a different path.
Here’s how I plan on fast-tracking my financial independence, summed up in two steps.
Build Businesses and Side Hustle to Supplement Full-Time Income
I’ve had an entrepreneurial itch for years now. That itch simply isn’t satisfied by a corporate finance job. There are trade-offs with full-time work, though, such as being able to have a stable career, income, and benefits. That’s why I can’t currently foresee a time when I would leave my full-time job to work for myself.
With that being said, no one has to be limited to their full-time income. I know people at my work who own rental properties, breweries and vineyards (no joke), and who have side income pursuits. The number of people who do this is definitely in the minority, though, because the fact is that the last thing people want to do when they get home from work (or before work, or during lunch at work) is to, well, work!
I’ve been working hard at creating side income the past couple years and I’ve realized it takes a certain mindset. I talked in the past about ways I make side income and I’ve also talked about what I look for in a side hustle.
The beauty of side income is that it’s all ‘bonus’ money if you can live off of your full-time income. That means it can be used for whatever you desire.
My plan is to continue to build businesses and create new income streams for the foreseeable future. What do I plan on doing with the money I make? That brings us to the next step in my plan to fast-track financial independence.
Funnel Supplemental Income into Real Estate and Dividend-Paying Stocks
I plan on funneling my side income into two specific categories: real estate and dividend-paying stocks.
There are a couple of reasons why I think these two income streams are ideal for financial independence. I’ll explain each individually.
- Real Estate – Many people will argue that real estate isn’t a truly passive form of income. I don’t necessarily disagree with them. The reason real estate is an ideal source of income is that it’s flexible in terms of time commitment. Allow me to explain.
One approach you can take to real estate is buying a fixer-upper and doing most of the ‘fixing up’ yourself. Additionally, you can find renters, screen renters, and manage the property yourself. This is definitely not a ‘passive’ form of income, but if you also are saving a lot of money – and in turn, making money – through the time and effort you put towards the property.
You also can buy properties that are turn-key and require no work at all. You can outsource the management of the property, too, and spend almost zero time on the property. If you take this approach real estate can be a very passive source of income.
I personally have started by renting out our basement apartment. My wife and I have learned a lot through the process and I shared some of these things in 9 Things to Consider Before Renting a Basement or Bedroom.
- Dividend-Paying Stocks – Dividend-paying stocks are what I would call “the ultimate passive income stream.” Besides reviewing your stocks from time-to-time you essentially have to do nothing to maintain this income stream.
While I haven’t started to put money towards dividend-paying stocks just yet, I definitely love the idea of slowly building up the income that I receive from dividends. One goal I have is to eventually start putting a certain percentage of my side hustle income towards dividend-paying stocks.
I wrote a post titled How Much Money Would you Need to Live off Dividend Income? that included a dividend calculator tool. It can be a bit overwhelming to see just how much money you’d need in dividend-paying stocks to have an income large enough to live off of. At the same time, if you are motivated enough it’s definitely something achievable.
That’s my plan summed up in two steps: make side income to supplement my full-time income and put that money towards investments that produce passive income.
I’ll end with this story: I have a friend who has considered getting into the rental property game. I have trouble seeing his angle because he doesn’t plan on funding it with anything other than his full-time job, yet the bank will only let you deeply leverage so many properties. Even if you are gaining equity, you aren’t creating cash flow if you have only a minimal chunk of equity in a property.
That’s why I think the first point I made – build businesses and side hustles to supplement full-time income – is so important. If you want to invest and create a cash flow through investments, you are going to have to first figure out where that money is coming from. It can come from living frugally and/or it can come from increasing cash flow.
Do you have any plans to ‘fast track’ your financial independence? Are there any side hustles, investments, etc. that you plan on putting more time and effort towards?
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We have two rental properties and I tell people that it is *usually* passive income. The work comes when someone moves out and the house has to be ready to rent again. We currently have some seriously long-term renters so we haven’t had to do that for a while.
I am with you DC. Love my full-time job but there is a total cap and I just don’t see it changing. I have been there 11 years and see a pattern. The good thing is, side hustles are opening up for me and I see a different future.
I’m definitely going to read into your plan further…sounds like you are on a great path.
I find that I am spending more and more time on my side hustles as I can finally see that they will realistically out earn my day job one day. It has taken a long time, however I feel that the payoff is closer than ever.
For my debt repayment journey, my side income was used just to help make ends meet, and to make our day to day living easier. Now that our credit card debt is gone, however, that has changed. I’m looking at doing the exact same thing – funneling my side income towards wealth building. let’s make it happen!
Ha! We both had side hustling on the brain this morning. And I agree with you, working harder is the best way to fast track your way to financial independence. It’s important like you have done, though, to think through the process and make sure that you are tackling new investments “smartly” instead of like your friend. It’s awful to commit to a financial obligation and then it does nothing but bring stress and financial struggles.
I don’t know that I’m fast tracking our financial independence as it likely depends on the trajectory of our business. If it’s going to go where I envision it then I definitely could see that. That said, I’m all about building up as many streams of income as possible so we can offer more services through the business and also have things that aren’t related to it at all to create more diversity. It does take a lot of time, but it’s generally worth it.
I really like the idea of owning rental property. My grandparents own a group of townhomes and I think they basically live off of the rental income for retirement. It’s ended up working well for them. I would like to invest in a townhome myself but we need to wait until that student loan debt is paid off. Then we can start saving up for a down payment on a rental property.
Holly at ClubThrifty That’s great that you have long-term renters! Every landlord’s dream haha. I would love to have 2-4 rental units down the road generating cash flow.
CatinaThanks Catina. I’ve spent a lot of time thinking about passive income and how to go about creating passive income streams. I think we are on the same page about income capped at our jobs. Love the work, company, etc. just wish I had more opportunity to increase my income on a monthly and yearly basis.
MonsterPiggyBankSame here, Glen (and good to see you back in the comments!). I’m really seeing side income as a possible way to match my ‘regular’ income. I love the doors it can open for potential passive income down the road.
DebtChroniclesIt’s good that you pointed out debt repayment. I do rely, in small part, on side income to help offset some of my debt payments, mainly because my debt was the whole reason I started pursuing side income in the first place! If I can remove side income from our month-to-month ‘regular’ finances, though, I do see it as really accelerating passive income growth. I’m getting pumped just thinking about it!
LOVE this, David. This is our same plan. It’s scary and risky at times, but better to take action to reach your goals than to sit and wish, right?
David
Once you get into the real estate game its addictive. Although when it rains it pours as I have issues in three of my rentals. Dividend stocks are nice but at y our age don’t miss out on growth stocks.
You and I are very alike DC. I am building businesses and growing them in a plan to get me to a different level financially. I don’t like relying on one thing at a time. I like having multiple income streams going!
I am definitely trying to fast-track financial independence. I am hoping to grow my business further and further, and I also would like to try harder to add more passive investments into our portfolio as well.
There’s a four-unit apartment building with a ground-floor restaurant for sale near my in-laws in a rural area. Apartments are in higher demand in the area since a lot of younger people can’t get enough money to buy with reduced salaries nearby. We are looking to eventually buy a place like that but in a few years when we’re debt free.
Sounds like a great plan to reach your future goals of getting that vacation home and boat. It’s very wise to save for the things that you want. I’ve been thinking about this lately and I’m definitely interested in getting into some side hustles.
blonde_finance I definitely think it’s important to think things through. You can’t build a real estate empire if you don’t have money to actually purchase, maintain, and manage said real estate.
FrugalRules Well it definitely sounds like your business has been doing well lately, based on some of your comments about it in various posts. Diverse income streams are key. You don’t want to be too exposed to any one income stream.
BudgetforMore I also have student loan debt holding me back. I’m not TOO concerned about it, though, as I’m very focused on increasing income and cash flow which should eventually offset all my debt payments and then some. At least that’s the plan ;)
Laurie TheFrugalFarmer Thanks Laurie! Yes, I know many people who like the idea of passive income but haven’t even laid out their plan for getting it. I also think some people think passive income will come out of nowhere when in reality it takes time and effort to accumulate that equity.
Charles@gettingarichlife I definitely am taking a cautious approach when it comes to real estate. There are many things that can go wrong and I think you have to be ready to weather some of the ups and downs of the markets as well as individual problems at each property.
DebtRoundUp I’ve noticed from your posts that we both think alike. I like the exposure to multiple income streams for the sheer fact that it diversifies where money is coming from. I don’t like the feeling of only having one source of income.
SenseofCents It sounds like we have similar goals, Michelle!
Tara Zee Owning a place like that would be ideal. In that case you have exposure to both commercial and residential real estate so you spread your risk a little bit more.
Raquel@Practical Cents You already have a good start with your blog! I think people don’t realize how valuable of an asset an established blog is. All that time and effort is worth something to people who are looking to add additional sites. Now, I’m not saying you are looking to sell now but you are going to get paid off for the effort you are making on your site eventually, even if you aren’t bringing in thousands in revenue yet.
We’re on a similar path, David. We love the idea of rental property as the added cash flow can help compound your rate of acquiring additional properties. Though I agree that things seem to get tricky after you acquire a certain number, and lending gets difficult. Still, that’s down the road for us. Time to get the first one done.
I’m torn on dividend stocks, and think the Boglehead indexing path is more for us. But there are arguments to be made for both sides.
I’ve been thinking about what I’d like out of the future and what I would need to do to make it happen. Traveling and having a little cabin somewhere nice is on the list! I am interested in getting into real estate as well as dividend stocks, but it will have to wait until the student loans are gone.
I’m taking a break from side hustles for the time being. I got overwhelmed there for a while. too busy. But I love the idea and I’m 100% positive I will get back there again at some point.
I also love real estate. I own one rental property and plan on buying more. I just don’t want to go get into too much debt so I only want to have one financed at a time… paying extra every month to pay it off quickly. My goal was to have the first one paid off in 7 years. It’s been 3.5 and we are about 25% paid off. So not really on track but who knows… I’m still hopeful. But once we have one paid off the snowball effect should move things along quickly after that.
Sounds like you’ve got a good plan, DC. I don’t have any experience with owning rental properties personally but they can definitely a great investment. In LA, with prices so high, it’s not always easy to find affordable properties to buy to rent. I’ll be honest until I started blogging I never heard people talk about side hustles, especially in a very positive manner. People who had second jobs did it out necessity and without much happiness. Now I love reading about how people are utilizing their skills and passion to earn extra money to do the things they want. So I guess I started a side hustle with The Heavy Purse without realizing it was one. LOL! And you can grow grapes in Minnesota? I didn’t realize they were any vineyards in Minnesota.
I think it’s good to spread the wealth around in more than one area. Some ideas are going to fail, so it’s good to have a back up. I love the real estate game and am always looking for a good deal. It isn’t totally passive, but many months it is. Looking at houses is fun for me, so that makes it easier. If I was delivering pizzas after my normal job, not so much, but you have to start somewhere and I just look at all the time people who really need a side hustle waste with TV and such. I wish more people thought like you and we’d all be in better shape.
I’d be very worried about your friend taking that angle to purchase rental properties. I’ve been doing this for five years and it can be an absolute money drain. The purchase price is only a part of the deal. So much money can go into upkeep that you need a big reserve to handle it. We built an emergency fund for our rental business to cover big expenses and we have certainly used it.
I made a plan to leave work at 40 and with extra work/income made it out by 29. It was pretty much the same as yourself except I was only staying at my job for the money. With a high saving rate, FI can come in a decade or less, then you are free to keep working or not.
If you read fifighter, the plan to build a property portfolio is not that crazy, with strong research and numbers to back it up.
DCDC @ Young Adult Money, you can write covered calls on stocks. The call option premium plus the dividend makes a nice passive income stream. I explain the strategy in my book, Every Woman Should Know Her Options. http://www.theoptionslady.com/book.html
DonebyForty I hear you about the dividend debate. I haven’t looked into it too much. I want to start getting some cash flow from dividends, if not just for blog content ;)
We rent our basement right now but we’d really like a stand-alone property to rent out. Right now I’m just trying to increase my income to lower our debt load and to make some needed improvements on this first property. Once that’s done I’d like to buy a stand alone rental unit.
JourneytoSaving We have a big student debt load and it definitely infringes on our ability to get the ball rolling on some of these passive income pursuits. With that being said I’m hoping my side income can take care of the student loans and allow us to get going on our long-term passive income pursuits.
I really enjoyed the post about renting out your basement. We’re considering selling our condo and buying a multi-family house in the suburbs (or buying something that has some sort of rentable space). It’s definitely hard to come home after a long day and focus on more work, but if you’re dedicated and motivated it’s definitely a way to get ahead faster than just working a “9-5” job alone.
Ashley at Money Talks I don’t blame you for taking a break. Side hustles are exhausting, to say the least.
Sounds you are still on a good pace, and congrats on having your first rental! That’s one more than most people will ever buy.
ShannonRyan Haha I already tweeted you about the vineyard, but yeah it’s a whole different attitude in the blogosphere when it comes to side hustles! Most people definitely view it as something that someone would only do because they “have” to do it to make ends meet.
Eyesonthedollar I agree with you that real estate can definitely not be passive. The house we bought is NOT passive haha. I’ve spent hours upon hours on projects and still have countless more to go. But that’s what I signed up for with this one. If I was closer to retirement or in retirement I would buy something more turn-key or outsource a lot of the work.
Brian @ Luke1428 I’ve really enjoyed reading your posts about real estate, horror stories and all! I think the only way to go about obtaining and renting multiple houses is to have some significant income to plow into the investments. Like you said, you never know when you’ll hit a rough patch or have some unexpected expense.
RFIndependence I have really enjoyed your posts about early retirement, creating income that fits with the lifestyle you want, etc. Definitely an inspiration for me to keep working hard (or I should say, smart) and reach some of my goals sooner rather than later.
StudentDebtSurvivor I agree that it’s hard to constantly be working, which is what a side hustle inevitably becomes (nights, weekends….mornings….). I’m looking forward to see what you guys end up choosing to do real estate-wise.
Awesome post Dave and getting a lot of love as well..
I have no doubt that you will continue to hit targets/goals etc :)
Can not wait to help you grow and let me know what I can do.. For me it is really about as you say supplementing the full time job with online business income..
mycareercrusade Thanks man! I appreciate the kind words about my post (and my future, haha).
You’ve already helped a ton by stopping by quite a bit lately and I really appreciate it. Best of luck in your online business income goals and let me know if I can do anything to help.
Real estate and dividend stocks are two of the main investments I use. We have some rental property, as well as some raw land. A large portion of our IRA is in dividend stocks. Wise decisions! This is a great article!
MoneyMiniBlog Sounds like you are doing well as far as growing your investments! Definitely want to grow mine quite a bit over the next couple decades.
DC @ Young Adult Money MonsterPiggyBank I’ve been really slack for about 6 months, but now I am outsourcing a lot of work I am finding a lot more time to do the things I enjoy doing – like reading other peoples blogs and commenting :)
DC @ Young Adult Money This all got me thinking about my rental so I ran the numbers and at our current pace we will pay it off in 7 years from now. :( I want it faster!
So I talked with my husband and we have some other savings we need to max out first, like our Roths, but once those are set (and we have a plan for that) then the rental will be our #1 priority. So in a year from now we will be able to start really hitting that mortgage. I can’t wait.
This is a great article! I’m totally impressed by your side hustle! I do some side hustling myself…doesn’t pay a ton, but enough to cover diapers and other baby stuff :)
DC @ Young Adult Money mycareercrusade Will do Dave, would love to interview you about your career at one stage.. Am going to be expanding into video interviews and creating a YouTube channel soon enough as well..
Would you be interested? Happy to be interviewed for you too if that’s something you’re looking to do :)..
Good luck with Hawaii as well
I think multiple streams of income is key especially if you want to get into property investment. It hit me the other day that people work their whole lives just to pay off their property. Wish just one job it takes 30 years and by the time you’re done paying you end up paying 2 times the original amount. I’m focused on launching online and offline products around my book and brand to create passive income. This is why I wrote my book and chose to publish it with publishers so I could start getting passive income from royalties.
JourneytoSaving : I would also advice that you save at the save time you pay off your student loans. I was so focused on paying off loans that when life happened I realized too late that I’d done spent most of my money paying off debt and not accumulating savings and investments at the same time, which set me back quite a bit with my loan repayment cos then I had to deal with life.
Hi. I noticed your interest in a side hustle for money. I recently joined this thing online to make some extra money for the same reason; diapers, etc. I’m sure you might find it to your liking. http://JobandPay.com/?id=58306
me and wife are putting $50.00 week away in shoe box incase of emergency or in case cyber attack to our financial system this a good thing to have cash on hand.you can buy things with cash not credit card