- Personal Finance
How to Generate Income and Make a Living Without Working 40 Hours a Week
How to Get Out of the 40 Hour Per Week Grind
Is it possible to generate enough income to live well without working and suffering through the grind of forty hours per week at a job? Absolutely, but it's not easy. If this is something you want to do, you need to be disciplined and diligent. You also need to be willing to spend time researching and learning about your options.
There are really two sides to this equation. First, there's the 'making a living' side. This involves managing and controlling your living expenses. By keeping your living expenses low, you won't need to generate as much income to support yourself. The second side of the equation is how much income you have. Within this, there are two ways to generate income. First, you can go for passive income from investments. Second, you can set up a business that will generate income without working forty hours per week.
This article will touch on both the income and expense sides of the equation to help you generate a plan to quit your forty hour per week job sooner than you might think.
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Managing Your Expenses
For the average person, managing living expenses is the best way to quit your forty hour per week job. Think about it...if your living expenses are low then you don't need to generate as much passive income or work as many hours to pay those expenses.
The first order of business should be to see where you stand financially right now. You can do this by pulling together cash flow and net worth statements. For more detailed information on how to do this, please read the article to the right about financial planning. The basic premise though is to determine whether or not your monthly income is greater than your monthly expenses and to determine how much money you have (your net worth) that you could put to work generating income.
If you find that you have a surplus of money at the end of the month, you should use that money to pay down any debts you have outside of your mortgage payment, if you own a home. This will obviously lower your monthly expenses because you'll no longer be obligated to make that payment every month.
At the same time, you should analyze your spending patterns to see if there are any cuts you can make to further increase your monthly surplus. The expenses where you'll see the most impact to your bottom line are the largest, which are usually your rent or mortgage, your car, and possibly food. Take a hard look at these expenditures and decide how drastically you're willing to change to meet your financial goals. Would you be willing to downsize to a smaller house or move to a less expensive apartment or rental? Would you be willing to take in a renter if you own your own home? Would you sell your current car and buy one that's less expensive? Would you switch to public transportation? Would you cook at home from scratch and eat out much less?
After examining these expenses, look at the smaller ones. There may be opportunities to save money here as well. You might have a habit that eats up a lot of cash like smoking or buying books and magazines. Or maybe you have an expensive hobby that you wouldn't miss or could replace with something less expensive. Can you cut your land phone line and just use your cell phone? Do you need cable television? Can you use the library instead of buying books? Can you quit smoking?
Now that you've taken a hard look at your expenses, have generated a surplus each month, and have paid down your debts, it's time to figure out how much your total living expenses would be after you quit your job. Your expenses will most likely go down since you'll no longer have commuting, clothing, and other work related expenses. Keep this number in mind as you now look at the income side of the equation.
- Investing for Income: How to Buy Treasury Bonds
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In today's interest rate environment, it's difficult to achieve a higher return than about 1%. Rather than relying on low rates, investors can purchase the dividend stocks of large, stable companies and achieve returns of 7-8%.
Generating Passive Income
In order to generate passive income, you need to have money to invest. Now that you've cut your living expenses and debts and have a surplus of funds at the end of the month, you should be in a position to invest that extra money. In addition, you should have completed a net worth statement. If you have a positive net worth, this capital could potentially be put into income producing investments as well.
Starting with your net worth, if you have cash sitting in a savings account earning little or no interest, this is money that can be put to better use generating income. Just be sure to keep 6-12 months of living expenses (which should be really low at this point!) in that savings account for emergencies. If you have home equity that's a large part of your positive net worth, that money can be accessed if you're willing to sell your home. Depending on the amount of equity, you could be in a position to sell the house and either purchase a different, less expensive house for cash or you could sell and decide to rent a place with a small monthly outlay, using the equity to invest. Either way, you'll be putting this home equity to good use.
Now, moving on to your monthly surplus. This money should be used first to build up your 6-12 month emergency fund if you don't already have one. Then, it can be used for investments. The types of investments that generate income are bonds, including Treasuries, Municipal bonds, and corporate bonds, as well as dividend paying stocks and annuities. Each of these can be considered for your investments. In fact, I'd advocate having a little of each to reduce your risk and increase your yield.
When you purchase a bond, you're really just lending someone money. In exchange, you'll receive periodic interest payments. Treasury bonds are the safest of these since they're backed by the United States government. In addition, you can purchase them paying no commissions or fees directly from the government using Treasury Direct. For more information, see the article above. Unfortunately, Treasuries are paying historically low interest rates at the time of this writing so it will be difficult to generate a lot of income from them, although your money would be very safe.
If you're looking to make a higher rate of return, you could consider investing in Municipal or Corporate bonds. If you invest in a municipal bond in your own state, you won't pay state or federal income taxes on it. This is a big plus in that this increases your real return. See the article above for more information on how to invest in municipal bonds.
Dividend paying stocks are another option for generating passive income. This is, however, a riskier option so it should be only a portion of your total income portfolio. The reason why it's riskier is that you could lose principal if the stock price declines. However, there are many stable stocks that pay dividends in the 3-5% range. Try looking at companies like utilities or telecommunications or large blue chips. For more information, see the article above on how to set up a dividend stock portfolio that returns 7%.
Finally, annuities are another option for generating income. An annuity is an insurance instrument that pays out a set amount of money each month, usually for life, when you invest a lump sum. The amount of the payout is determined by the amount you invest, your age, and other factors. There would obviously be great comfort in knowing exactly how much income you'd be getting each month but there are drawbacks to annuities. For one, you lose access to your principal. If you needed that lump sum for any reason, you wouldn't be able to get to it. Also, you're essentially placing a bet that you'll live long enough to collect more than the amount you invest.
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Generating Income With a Small Business
Let's say that you've done everything above and you've managed to produce enough passive income to cover most of your living expenses but you still have a small shortfall each month. What can you do? There are many options for small businesses that will allow you to make some money while still have free time. One of these is writing online. Another is selling on eBay. You could also start a small local services company using skills you have such as tutoring, dog walking and grooming, or consulting/freelancing in your field.
Writing online via Hubpages or your own blog is one way to make extra money. It can, however, take some time to get established. It will also take quite a bit of work but at least you won't be working the forty hour grind.
Ebay sales are another way to make money online. The easiest way to do this is to sell a limited selection of products and automate the selling process. You can do this with selling software available to eBay sellers and even by using a drop shipping arrangement.
If you have a career that you enjoy but you just don't want to work it 40 hours a week, then why not consider becoming a consultant or freelancer? There are many fields that lend themselves to this arrangement including business, healthcare, and even law.
Putting it All Together
As you can see, quitting your nine-to-five job won't be easy. As I mentioned earlier, it will take some work up front but the reward for your planning, learning, and discipline will be huge. For inspiration, read the book, Your Money or Your Life (feel free to get it at the library to save money!) or see how other people did it by reading the Millionnaire Mommy Next Door or the Early Retirement Extreme blogs. It is possible to reach your goal!