In my last post I mentioned passive income. Passive income is described as income generated “without doing much”. That’s somewhat vague, I think. What I consider passive you might consider work and vice-versa. When I was a teenager I lugged foundation forms around for a whole summer. What I do now as a software engineer is comparatively “passive” with respect to physical effort but, I digress. What I consider passive in this context could easily be defined as effortless. In my last post I mentioned our Money Market account with Capital One generated around $15 in one month. That is truly effortless; that money made money while we slept. If I’m earning money while I sleep I couldn’t possibly put forth any less effort while still having a pulse.
In order to achieve my goal of $100 a month passively will take more, however. I just don’t have enough liquid cash to deposit in a Money Market to generate $100 per month in interest. In order to generate $100 of interest in one month @ 1.75% I would have to deposit around $70k. I would have to tap into my retirement or take out an equity loan to get that kind of money and both of those ideas would cost me way, way more than what I’d get back so, the MM alone just won’t cut it. But it’s a great start.
You may be thinking, “there are other investment vehicles out there that could generate that kind of return” and you’re correct. There are thousands upon thousands of financial products out there that could probably generate more than $100 a month for me. However, as we all know, with greater returns comes greater risk and there is one very important aspect of this endeavor for which I must account; I cannot risk losing more than 15% of our liquid cash asset. At least right now. That number might grow as our savings grow but as I’ve mentioned before this is not just my money, this is my families money. If 2008 like markets should rear its ugly head again I’d be in a very tight spot. I’m young enough to hold and weather the storm but I’d be constantly worrying about an emergency forcing my hand. So, for now, I have around 5 months of expenses in the MM or $20k @ 1.75% and I know that money is safe. The interest could drop but the current value of the account will never dip unless I withdraw. That makes me feel safer but I’d truly like to have 8 months worth of expenses in there which would be another $12k. If I can bring it to $30k I’ll be satisfied. That would be more than enough money accessible without penalty should we need it.
But how close to the goal of $100 a month will $30k bring me at a rate of 1.75? The math says about $43.00. That’s not bad. That’s almost halfway to the goal. I need to find another way to generate $57.00 a month. I think I know an easy way to get a good chunk of that $57. I’ll cover that in part 4.