If you’re unemployed today, this article may not be for you.
This article is about learning to protect yourself from a future job loss by creating sustainable income streams that will continue to pay you even if you’re not working.
Of all the financial advice I read and practice, the one nugget that continues to drive my decisions is to build multiple income streams.
Having experienced two major economic downturns (2000, 2008) as a salary earner and investor, and watching ordinary people get hit hard by the impact of each, I’ve learned to build moats to protect myself when times are good.
That way, when things go sour I’m not naked in the low tide, as Warren Buffett likes to say.
This concept was especially noteworthy for me recently because I lost my nine-to-five job.
While I was still working, I built a healthy cash buffer so we’d have that to keep us afloat for a few months if needed.
But my preference is to live off of the passive income streams and online side income I’ve built over past years and to NOT draw down our savings and investments. Adherence to that will depend on how long this jobless streak lasts and how much I can earn from my online business.
Hopefully, you’re reading while you’re still employed so you can take steps today to protect against a job loss.
Update: After four months of unemployment, I found a great new job and I’m back to building my passive income streams!
The 7 Income Streams I’m Earning Right Now
I’m now earning seven income streams. I keep track of them all with a free online tool called Personal Capital.
Most of these are passive, meaning I spend little time on them every month but still get paid. All income streams require some attention. But the more work I put in up front (research, due diligence, repairs etc.) the less I have to worry about day to day.
Here are the seven income streams I’m earning right now and the approximate cash flow they generate.
#1 Interest on Cash
Current Annual/Monthly Income: $600/$50
Interest on cash isn’t a very sexy investment. Especially when rates are so low they are below the rate of inflation. However, as an old-school money nerd, I remember the days of 2%, 3%, and 4% interest on cash savings accounts.
Interest on cash is the bare minimum investment everyone should make so your money is always working for you.
CIT Bank is the best savings account today. The bank currently pays 1.85% on their Money Market high-yield savings account and even more for CDs. I recently switched to CIT from my long-time account with Capital One 360 that was only earning 1.00%.
CIT is non-nonsense, risk-free, and FDIC-insured. Learn more here.
#2 Real Estate Crowdfunding
Current Annual/Monthly Income: $1,425/$118.75
My newest and most promising passive income stream is real estate crowdfunding. These are high-quality real estate investments that I’ve made on a few different platforms as part of the ‘crowd’. The online platforms enable multiple investors to make small investments in real estate deals.
The professionals handle all the remodeling, tenant issues, and legal mumbo-jumbo behind each deal while investors sit back and earn a return. Sounds too good to be true, right?
Well, these kinds of investments (multi-unit apartments, commercial, fix-and-flips, preferred equity etc.) have been available for years, but only to high-net-worth and institutional investors with the right contacts. Crowdfunding is now enabling the smaller investors to take part, making it simpler to invest and cheaper for the borrower.
The three platforms I’m investing on are:
- Fundrise (read my review) – Best for beginners. $500 minimum to get started.
- RealtyShares (read my review) – Debt and equity deals for accredited investors only.
- PeerStreet (read my review) – Low-risk debt deals. Simple platform. Accredited investors only.
What I love about these platforms is I can diversify my real estate holdings across the nation very easily and participate in price increases in solid markets outside of my local. Plus, it’s an easy way to diversify away from stocks.
#3 Dividends from Stocks and ETFs
Current Annual/Monthly Income: $5,731.42/$477.62
I’ve invested in dividend-paying stocks since 1995 when I was given the gift of one share of Chevron. Now I own more than 50 dividend paying stocks. Most of these stocks pay quarterly dividends and increase their dividend each year.
By building a diverse portfolio of dividend-paying stocks, I earn passive income that grows faster than the rate of inflation each year.
The best place to invest in stocks and ETFs is the no-fee online brokerage called M1 Finance which I think will appeal to most beginner to intermediate investors. This broker uses modern technology to create an incredible user experience on both desktop and mobile. As of December 2017, they’ve eliminated fees for all investors to compete with the likes of Robin Hood. Highly recommended.
Read more: M1 Finance Review
#4 Peer to Peer Lending
Current Annual/Monthly Income: $4,800/$400
Lending Club was a solid investment for the first four years I participated. My returns were above 9% for most of that time. However, in the past 12 months, earnings have taken a hit and are now in the 6.5% range. This is due to the widely reported note mispricings by Lending Club. They’ve since updated their credit model and hopefully returns will recover.
For now, I’m pulling interest and principal out of Lending Club to pad my cash flow during this jobless period. That’s why my annual and monthly numbers stated above are higher than what I report in my quarter update. The last two months I’ve withdrawn $700 and $600 respectively. Since I expect this to diminish, the $400 monthly number is a rough estimate going forward.
Once my returns stabilize (which I’m starting to sense is happening), and I’m back to work, I’ll start investing again.
#5 Online Business
Current Monthly Income: $2,000+
The initial idea for this website was two-fold: 1) to be a creative outlet outside of my mundane regular job, and 2) to eventually be a source of side business income.
It took about six months before I earned my first penny with this blog, and another 18 months before I ever earned $1,000 in a single month. Since then I started a second website and I’m now officially in business with an entity and everything.
My side business income is now comfortably above $2,000 per month, but income from an online business is not stable. With this recent extra time off from my real job, I plan to take steps to further grow my online business to earn more money passively when I go back to work full-time.
Blogging is not for everyone. You have to love what you write about and do it consistently. Read this post about starting an online business to learn more.
#6 Rental Property
Current Annual/Monthly Income: $3,346.06/$278.84
I’ve owned a 1BR condo unit since 2006. For the last six years, it’s been a rental property helping to build my wealth.
When I calculate my forward 12-month investment income in my quarterly updates, I use a conservative formula that includes maintenance and vacancy allowances. Those allowances have added up over six years and I now have an $8,200 cash buffer in the bank.
Now that I’m not working, I need to free up cash flow to fund my living expenses.
So I’ve added monthly maintenance back into my cash flow. That’s an additional $149.17 in income I can now access. Not a ton, but certainly helps since my primary income is gone.
# 7 Capital Gains
Current Annual/Monthly Income: Variable when needed
At this point in my jobless journey, I do not plan to sell any stocks to pay for living expenses. We have enough cash and cash flow to live on for at least a few months. I did sell a few stocks leading up to this, but not a lot. My taxable stock portfolio is now worth over $200k, so it’s there to tap if needed.
A more likely scenario is I’ll sell some stocks to lower my taxable income. A few holdings are in the red. Tax loss selling some shares would help to lower my taxes at the end of the year by up to $3,000. One stock I own is in the red by more than $2,000. I still want to own it, but may buy more shares and sell the old lot after 30 days for the tax loss.
Capital gains are more of an optional income stream if needed. If I get to that point, I won’t be happy about it!
#8 Nine-to-Five Job
My company liberated me from my job in early October due to a lack of funding for my project and the surrounding IT contracts. I’m optimistic that I’ll be back to work in the next few months. However, I’m using this time to spend with our three kids, to work on my online business, declutter our house, exercise, and complete a few home DIY projects.
Having significantly built alternative income besides my full-time job, I’m empowered to be able to take time off without worrying about running out of money. So far my time off has been peaceful and fun, but more difficult to avoid distractions than I imagined. So far, I’m having trouble allocating my time properly and feel I’m not as productive as I should be. But it’s a work in progress.
January 2018 is my target goal to go back to full-time work. I won’t be collecting unemployment benefits during this time.
Tallying up my investment income, and not including business income or capital gains, here’s what I’ve got:
|Income Stream||Annual Income||Monthly Income|
|Interest on Cash||$600.00||$50.00|
Keep in mind, this is as close to a scorched earth scenario I’ve ever encountered. I wouldn’t normally account for my rental property and peer lending this way. But since I’m not working a full-time job anymore, my mindset has changed.
Also, $1,325.21 per month is not nearly enough for my family to live on. Our mortgage alone is above that. Preschool is almost $600, plus health care takes us up another level. I’ll be relying on my monthly business income to bridge the gap, which exceeds all of these income streams combined. But it fluctuates, and portions of my business income streams come and go.
Now that I have the time to adapt to fluctuations, I’m fairly confident that I can keep up the business income. But not to the point where I’d give up work to focus on entrepreneurship 100%. My career outside of blogging is lucrative, so I don’t want to abandon that just yet.
Most of these income streams have paid me for many years. Those payments were always reinvested. But now that I’m unemployed, I’ll be using the income streams to keep my family afloat. The rest of our expenses will be covered by cash savings.
My passive income is nowhere near where it needs to be to fund my family’s lifestyle indefinitely. That’s why I’m planning to eventually go back to work, but also why I’m building my side business income.
The investment and business income help soften the blow of the layoff. And I feel that having those in place have empowered me to handle this situation better than I could have five years ago. But losing my job could put a damper on my mid-term F.I.B.E.R goal of quitting full-time work in 2022. I don’t believe, however, that my ultimate goal of retiring by age 55, a year before my Dad did, is at risk.
Photo credit: pixel2013 via Pixabay
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