This guest post is from 20s Money talking about building financial independence from online income streams instead of relying on the traditional income streams from Wall Street. If you are interested in contributing your own story or plans, see here. I currently have a couple more lined up.
I have an early retirement plan, like many people, but mine is slightly different. The normal system of working out the numbers to figure out how much I need to accumulate in order to live X amount of years at Y dollars per year is definitely a part of my early retirement strategy; however, it is only half of it. The other half is more income focused. While prudently saving, I’m also focused on developing income streams.
The overall objective is to amass a sum of money that serves more as my “emergency retirement funds” while living off income from a basket of income streams that I’ve developed prior to “retiring”. These income streams may require some level of effort and work to maintain them, but they are income streams that require no more than a few hours a week of work and work that can be done from home. There are risks to an early retirement (which i will address later) and I believe it is a better strategy to not touch the money saved up, instead letting it grow while living off other income sources.
If one is to step back and examine what it means to retire, it is all about income replacement. Most people replace their income by withdrawing money from savings or investments. I’m merely focusing on cash flowing assets versus my traditional savings and dollar denominated assets (stocks, bonds, etc.). It is still important to pursue the build up of cash and stocks because it is another level of diversification and like I mentioned above, it will serve as “emergency funds”.
Turning to specifics and actual numbers, I’m currently 27 years old. It is not unreasonable for me to establish retirement funds (cash and stocks) of about $300,000 – $400,000 by the time I am 35 years old (I currently have approximately $50,000 saved). It is important to not include equity in your primary residence since you will always require a place to live, although you may rent down the road. Moving on, it is also not an unreasonable goal to having established income streams producing anywhere from $3,000 – $8,000 per month in income by the time I am 35. Let me explain the strategy and path to get to this point.
I plan to work pretty hard over the next 8-10 years. My primary job provides my primary income plus enough to save about $10,000 to $30,000 per year (maybe even more) depending on performance numbers. There is potential for even greater upside and there is potential for limited growth, depending on the economy, and a few other factors. By living frugally and smart, I can build up my so called “nest egg” to a nice level. By being a patient investor, focusing on depressed stock prices (which equate to higher yields), I can lock in very attractive returns for these funds which will hopefully grow the nest egg even faster over the years.
While working on my primary career, I’m also dedicated to developing income streams as I’ve mentioned several times already. My first income stream that is already established is my online blog, 20smoney.com. I started that website to provide financial information and advice for people in their 20s that is not typically found in the personal finance blogosphere. Currently, the blog brings in anywhere from $250-$450 per month. Instead of saving that money or spending that income, I’m currently reinvesting the proceeds back into the blog. As I mentioned before, my goal is not an income stream that produces a few hundred dollars a month, but an income stream that produces a few thousand dollars a month at minimum. Therefore, while I’m living off my main job and funding my nest egg through my main job, it makes sense for me to maximize the efforts to grow the income stream by investing in it (similar to reinvesting dividends into a stock).
As one income stream (my first blog) becomes more stable and I shift some of the work to other people, I will shift my own focus towards building a second income stream from the ground up. Again, it will most likely be in the form of a blog or a website because of how easy it is to setup and because it costs almost nothing to get going. Plus, with my first successful blog launch under my belt, the second one will be much smoother. I believe that each blog launch really takes 2-3 years to get up and running and to be able to actually produce some decent income. As I said above when I mentioned my income goals, it is not unreasonable to expect online income in the range of $3,000 – $8,000 per month in 8 years when I’m tentatively planning to retire.
I have thought a great deal about the security of online income and have found it to be just as secure if not more than the income from a “regular job”. Unless there is a huge shift in the way the web works, the traffic and income is actually very secure for a website. The ebbs and flows of the economy hardly affects it, as opposed to very much affecting regular employment. If you think about it, online advertising (a big source of online income) is only in the infant stages. The online economy is growing much faster than the non-online economy, so come to think of it, it’s a better place to be than say… manufacturing in America.
The main risk that I see for early retirement, especially when observing current economic and monetary policy, is inflation. Anyone contemplating early retirement should study inflation and ensure that they are protected or hedged for such a development. Online income, like many businesses, are actually pretty good places to be in an inflationary environment (since businesses typically just pass on higher costs). Having funds in inflation protected assets like commodities and even stocks is also important.
By achieving consistent online income from one or more sources that will provide plenty of money to live off and also building up a nice nest egg to earn investment returns and to be funds to “fall back on” in the case of an emergency, it is very possible to achieve “early retirement” in my mid 30s. I view “early retirement” as simply achieving ultimate freedom. No boss. No 9-5 job. My only work that I partake in is work that I enjoy and can do at anytime and at any place (just bring a laptop). Early retirement brings the flexibility in life that allows me to pursue the projects and activities that I wouldn’t be able to pursue working a 9-5 job. The financial independence, the flexibility, the freedom… it’s a fantastic goal to pursue.