My Own Financial Freedom Epiphany

I’ll be updating this post weekly with new content at the top. To read this week’s update, start here with Part IV: Testing Income Streams, Measuring Success. Scroll down to Part I to read the earlier posts in my Financial Freedom Series…

Part IV: Testing Income Streams, Measuring Success

In this post I’ll share the early retirement income streams we’ve tested out over the past decade, and a huge factor in determining the outcomes of our income trials: delegation. At this point, I’ve concluded that delegation is smart in every area of your life so you can get more done using your highest skills. Plus, it’s a necessary ingredient in success because there’s simply no way to master every skill needed in life. This is true for running your own business as well as for investing. After this realization, I began delegating in both areas, as I’ll explain below. The lesson was this: How we delegated had a big effect on the outcome of our investments.

Wealth Creation, Management and Delegation

Most people don’t think of hiring a financial advisor as delegating, but it’s a perfect example of paying someone to do a task or service for you. Financial advisors and fund managers choose securities for you with no input at all from you. With investing, delegation can take many other roles, too, including CPA’s to file your taxes, bookkeepers to do your accounting, and attorneys to manage your legal affairs. Another delegation example happens when you buy into a partnership, such as a real estate or oil partnership, with a designated person to lead investment decisions.

You are paying someone to do something for you in each of these examples. These situations, however, call for you to take the time to know and understand the basics so you can choose wisely just who is buying those securities for you, or calculating your taxes, or purchasing that piece of real estate.

Delegation comes with one big caveat, at least for my level of existence (vs. CEO of a huge corporation). The more you know about the area you’re delegating, the more likely it is that you’ll get good results.

There Are No Shortcuts to Investing

Our big lesson from income investing that relates to delegation is this: Our best investments came from doing our own analysis vs buying into partnerships or outsourcing wealth management to avoid the work. It’s easy to give away a task with a huge sigh of relief when you have felt the burden of needing to do something, but not really doing it, for whatever reason. I get this all too well, having been there and done that because taking care of my life savings felt scary. But this isn’t really delegating, it’s giving away your power.

What I learned is this: There are no shortcuts. Some basic knowledge and research has to be done before any delegation is made because that knowledge significantly reduces risk. Once you have that basic knowledge, giving someone a task becomes delegation.

Results from the income methods we explored were a direct result of our level of knowledge and involvement, further solidifying my commitment to financial education. Knowledge is necessary whether applied to small business income, wealth management tasks, or traditional investing.

Income Streams

Here are the early retirement income streams we established back then, and how they worked out, which is highly related to our level of learning. You’ll notice that there are no investment income methods such as stock dividends or bond interest since the rates for both have been so low for the past decade, but they certainly are possibilities at times. We have continued with these same income streams ever since, as the opportunities are present based on market and other factors. They include:

Rental properties – This worked well when we choose the properties, disaster with partnerships
Covered calls – This worked during up market cycles but took time to master
Oil – Worked well with my husband’s oil expertise
Small Business – Worked well for our own businesses only, with many lessons!

Is Investment Income or Small Business Income Better?

Now that you’ve seen the importance of delegation vs. giving away your power, you may be wondering if you should focus on creating some sort of business for income, or try to get income from traditional investing. Your goals, skills, time frame, and capital all help determine whether investment income or business income makes the most sense for you. Investment income requires almost no time, while business income can require little to a lot of time. One advantage of having both business and investment income is that diversifying between small business and investment income can help cover all of your bases, especially when it comes to market cycles.

There are pros and cons to both income investing and small business income. The truth is that many income investments and online businesses have 10-year “overnight successes” and many more never succeed. Income from investments, on the other hand, are fast and more predictable, yet subject to market and economic conditions. With small business it’s easy to put a lot of money into an idea only to see it fail. With income from traditional income investing, the underlying asset, which provides the income, will still probably exist as long as you have done your research, but it will have swings in value. And finally, as you’ll see in my next post, income from investing is limited, while income from small business can have many different unforeseen income streams.

Clarity, Hope & Inspiration

My little income idea evaluation spreadsheet provided clarity around whether we should focus on investment income or small business income. It also gave me hope and inspiration, along with some realistic analysis. This was something I really needed in late midlife after going through two devastating market corrections. They’re now in the somewhat distant past, but it’s wise to remember there will be more market corrections. More importantly, income streams from small business or investments provide money for you to live, no matter what the markets are doing.

The Great News

You may be worried about your financial future. Or you may have realized, like we did, that even a challenging 8% sustainable return on your investment account is not going to give you financial freedom. Or you may have done the calculation and seen that the 4% withdrawal rule isn’t going to maintain your standard of living without retirement income streams. The great news is that there are wonderful opportunities to create and live the life that you want. Fear not, as there are solutions. I’ve spent years learning and implementing these solutions out of necessity. Fortunately, creating income streams and investing are both areas that truly interest me.

Get Excited about Money Instead of Avoiding It!

Kick-start your optimism. Brainstorm what’s possible. Own your skills. Utilize your capital. Recognize your strengths to create wealth, whether that includes capital, skills, or passion!

Only you can choose what works best for you based on your skills, capital and other factors, which are all part of my Income Idea Evaluation spreadsheet.

I asked my assistant, Rachel, to take my nerdy spreadsheet and turn it into a template that anyone can use, and we call it my Income Idea Evaluation Tool. It’s free with one big caveat: You promise that you’ll take 5 minutes right now to use it. Take this important step toward your creating your own financial freedom!

I still use this tool to marry these important elements, time, skills, money and life, when I get new business ideas. Click here now to get my Income Idea Evaluation tool.

Part III: The Major Income Stream

After months of researching both investment income and small business ideas in late midlife, my soul searching led me to create a website around women and money based on my passion for investing and smart spending, along with several other factors in 2007. If you’re thinking through the best income streams for your own situation, this is an important process, but an area where many people get stuck and never do anything. Don’t let this happen!

Since you’re going to lean test your income idea, and you’re limiting your risk, this isn’t an all or none decision. The main thing is to move forward. Set a date by which you’ll at least test out your top income idea choice. You’ll want to consider factors that may not be obvious, and those factors are included in my free Income Idea Evaluation Tool which you can grab here for free.

Why Financial Woman?

In this article series, you can see how and why I chose FinancialWoman.com as my first major income idea focus, and what worked and what didn’t. As I listed the things that I knew about that could possibly lead to income streams, investing was at the top since I had been investing for over two decades by then, had a financial and commercial real estate background, and related education. That was the boring bio stuff, but I knew that I was both knowledgeable and passionate about investing from my own deeply personal experiences. I knew better than to think that this was enough to be a business foundation, so I kept thinking and writing in my wealth journal.

I knew that this was an area where I could serve because it was (and is) clear that women needed to step into financial empowerment! Plus, my writings would come from my own experience vs. financial education from yet another financial services firm. Money was such a politically incorrect, yet worthy topic, so it seemed perfect if women would be open to becoming more verbal about investing.

Anyone Else Like Smart Spending?

My other huge passion that I lived daily was creating style with smart shopping. Successful finds included a huge antique French farm dining table, an SI2, I color, 1.3 carat brilliant diamond and a worn once Rolex watch in 1986 for $500, all from newspaper ads. I had always researched and bought used cars, furnished our homes with high end estate and garage sale finds, and hung out at consignment stores and TJ Maxx®. This passion led me to secure an antique booth as a potential business, but when I got the call that the space was ready, I rethought the business based on my Income Idea Evaluation.

Missing Elements

You see, my evaluation included leverage and growth potential, and these important elements for wealth creation were missing with the antique booth idea. This isn’t to say it couldn’t have happened; look at the huge success of Junk Gypsy® and Joanna Gaines! Both of these women began passion-based businesses. For me, leverage and growth potential seemed harder because an initial online presence, which these elements much easier, was missing.

High Value Skill

Then it occurred to me that what I really loved were treasure hunts to discover hidden value, whether the bargain related to buying a stock, a piece of real estate or a diamond! It all came together; the passion and the skill. But what was my business model? What was the highest value skill that I could share? Could I combine my passion for treasure hunting and investing somehow?

Passion + Purpose = Fuel

On my trusted Income Idea Evaluation spreadsheet, the irresistible opportunity that I knew nothing about was building a blog to write about money and investing for women, while also building a brand. It was an obsessive passion fueled by financial discrimination toward women during most of my lifetime, whether spoken or not. You may have experienced this, too. Well, I was pretty driven by it, to put it mildly. There had been a lifetime of disempowering financial subtleties: the diverted eye contact when the talk turned to investing at dinner parties, or amazingly, even when meeting with a financial advisor, shopping jokes about women spending senselessly, all reinforcing general wealth avoidance by women after centuries of discouragement from financial empowerment. Yep, the purpose and passion were both there.

Why Starting an Online Business Made Sense

Then there were the practical bits. The factor that made an Internet related business so alluring was that there was virtually no capital required, unlimited opportunity, and the chance to gain transferrable and cutting edge knowledge and skills. Plus, I loved the subject, even though I was early to the party since there were few women and money websites at the time. I knew nothing about technology, and hated it, quite honestly. But, I knew that technology would be an important element of business ownership moving forward. The reality was that the ability to earn income from traditional investing was and had been very low for years. So, initiating small business income was a highly desirable element for wealth creation while still in my forties.

Plus, technology knowledge would be valuable, I reasoned. If I could figure out how to do it, an online presence would be fast to create, and my time and skills could be leveraged across multiple businesses beyond a website. Importantly, an online business was very cheap to test. My kids were nearing high school, making it the perfect time to reinvent me. It was time for me to “get a life” as a mom.

The Fear of Starting an Online Business

Yet thoughts raced through my mind about not being good enough. Aside from the technology, how dare I write about investing when I have not achieved perfection! (I now know that it simply doesn’t exist.) And the internet is so “out there”!

You may have that same little voice in your head. For me, the voice was reminding me of the time I lost money in a stock, or chose the wrong financial advisor, or the fact that financial order is such a challenge for me. (You’re the messy, creative little sister, for heaven’s sake, the voice cries out, even still!) But what great teachers are our mistakes, and only after making them can we truly teach what we learned to help others! And what better way to improve myself than to share how I overcame (and still overcome) these challenges, hold myself accountable simply because I am writing about the realities of what is required to create wealth and happiness in my own life, including the awareness that every single successful investor has made mistakes!

I intimately know the struggles of creating positive cash flow vs. wanting that better education for my child, craving the family vacation, or wanting to work for myself so I can have freedom to live and work where I want. I also get the frustration of looking at the 1% interest on savings that sit idle while the stock market is booming, the humility of asking “What is the S&P 500”, or the intimidation of investing amid the myriad of choices, the financial lingo, and the lifetime of feeling that managing family money is not really “supposed” to be my job because I am a woman!

How I Built the Financial Woman Site

Yet I knew that my life would not be complete if I did not write about wealth for women. Aside from the feelings of unworthiness and technology intimidation, I bought thefinancialwoman.com, and hired a student at $12 an hour to build the website, having no idea of what I was doing, or the many related opportunities that would come from my decision to build this little website about women and money. (Now this entire process takes me about a week!)

Passive Income Streams, Too

While I established my website (and had many learning opportunities, a.k.a. big mistakes), we made other investments that generated mostly passive income. Some worked out and others didn’t, but the 2006 to 2008 period was a very tricky time to be an investor and keep your shirt, which we did, but not without some pain.

In my next post I’ll share more about how we created income streams during the total financial turmoil from the stock and real estate devastations. In the meantime, get busy brainstorming your best income ideas. Grab my Income Idea Evaluation Tool below to guide you. It’s free with one big caveat: You promise that you’ll take 5 minutes right now to use it and take this important step toward your financial freedom!

Click here now to get my Income Idea Evaluation tool.

Part II: The Next Steps

Following my epiphany in 2005 when I realized that without retirement income streams, we were not on track to maintain our standard of living once we stopped working, I became as diligent about researching alternative income streams as I had about traditional investing over the prior two decades. I wanted financial freedom, and I knew it was possible. We didn’t want to rely only on the 4% withdrawal rule, or risk outliving our investment accounts, and why should we? I definitely wanted a Plan B to the traditional retirement model, and I even wanted to establish it well before retirement so it would be in place to add a level of financial security.

(Note: I use “I” and “we” interchangeably in this post since I am married, and we each do different financial roles.)

At the time, I was in my forties, and like most people, wanted to continue to expand my life experiences. Part of that expansion included the personal development that came from creating some form of new income streams, whether from our traditional investments, small business, or both. Income expansion is one of the most important factors in building wealth, yet it is usually completely outside of wealth management. And income is rarely a focus of financial planning until after retirement, yet it’s monumental.

Not only this, but creating new retirement income streams is the obvious answer for millions of Boomers who saw their savings accounts diminish two times during the first 2000 decade from stock market and real estate declines. Those corrections are hard to bounce back from, especially so close to retirement age.

My Experience=Your Lesson

In these posts, I’ll share what we experienced in our early retirement income stream quest with the intention that it will shorten your learning curve, reduce your risk, inspire you, and help you create financial freedom in your own life. Life is full of challenges, and by accepting and embracing them we grow. This perspective helps keep things optimistic if you find you aren’t on track for your money to outlive you in your desired lifestyle.

Seeing things on paper always helps me, so, at the time of this big realization, I grabbed my journal and jotted down all of my income generating ideas. They were all over the place as far as capital requirements, time and income potential, so I created a spreadsheet with these different factors, and a few more. Suddenly, I felt a lot of hope, and I saw that this process really boiled down to choices about lifestyle and risk tolerance. (Click here now to get my Income Idea Evaluation Tool)

Ask Questions

At the time, I had many questions as I pondered the income streams needed to fund our financial freedom. You may have some of the same questions. I’ll be sharing the answers that we have discovered over the years since then.

Should our income focus be related to traditional investing, or completely separate, such as small business ownership, or both?
Should I focus on one income stream or many?
Should I keep our money invested in traditional investments or should we use it as capital for an income generating asset?
Would real estate rentals be a good fit for us?
Could we generate good income from our stocks in a time of paltry dividends?
Would income from preferred stocks, REITs and oil and gas MLP’s work to reach our income goals?
How could we get enough bond income, and was it safe in a time of low interest rates?
What would be the least risky way to generate income?
What would the tax consequences be, and could we possibly lower them by capitalizing on small business or real estate tax friendly rules while creating our income streams?
Should we aim for partially taxable income, tax deferred or free income, such as income from municipal bonds or REIT’s?
Should we buy a business using a chunk of our capital and leave the balance in traditional investments?
How much time would the various strategies take to implement and maintain?
Should we work as a team (my husband and I) to create income streams, or pursue separate endeavors?
What skills did we have from decades of experience that would most benefit us now, and how?
Which strategies would sustain us when we wanted to stop working completely?
Which income strategies would keep working regardless of what the politicians, the Federal Reserve, or the stock market did?

I intensely and avidly studied real estate rentals, traditional income investing possibilities, and business ownership.

Assess the Risk

We seriously considered buying existing businesses, including a trendy dine in movie theater, and a commercial close out business. It seemed to be the fastest way to have immediate, significant, and sustainable income. After lots of number crunching, and meeting with banks, potential partners, and the sellers several times, we decided that there was just too much risk in buying either business in an area where we no experience. Even though the numbers and opportunities looked great, it just wasn’t worth the risk, especially in our late forties and fifties.

Balance Opportunity And Risk

We had to walk that delicate and challenging balance between opportunity and risk. This is such a core investing principle. If we failed, we would lose most of our investment accounts, which were needed to secure the small business loans due to the strict lending guidelines for riskier small business (unlike real estate lending at the time!). Plus, we knew that each of these businesses would virtually eliminate our treasured family vacations and require long workdays away from home.

The Criteria

I saw that I definitely wanted income with less risk, and less capital requirement. I went back to my spreadsheet. One criterion that I had included on it was skills that I definitely had which I could capitalize on. Another criteria was whether or not I would enjoy the endeavor, since I believe that you naturally put more effort into doing what you like, and you enjoy life along the way.

Two Ideas and An Epiphany

This approach led me to two ideas outside of somewhat traditional investing, with yet another epiphany. The one asset not listed on our net worth statement was us; our skills and expertise acquired from years of work, study and real life investing. Not only this, but there were life areas we knew a lot about, including parenting, wellness, living as an expat, and creating style at low cost, a skill my mother had brilliantly modeled. For my husband, this included international business negotiation and culture, running a small business (for his former boss), securities trading, and oil and gas. Not only this, but these were the areas where we felt confident, where we could serve others best in some capacity, while giving the best value to them. I now encourage everyone to identify these skills and call them for what they are: personal assets.

Stay Tuned

In my next post I’ll share how we used these skills to create income streams beyond what we ever realized was possible while working from our home office with our yellow Labrador impatiently awaiting his daily walk in the woods.

In the meantime, grab my Income Idea Evaluation Tool here to discern the best income ideas for your situation, just as it did for us. It’s free with one promise…. You’ll open it right now and begin creating your own financial freedom.

Part I: Your Financial Freedom

It’s easy to lose site of the fact that financial freedom is the ultimate goal for investing, amidst the endless potential topics around stocks, bonds, taxes, and 401K’s. Only you can define what financial freedom is for you. But, for my husband and I, financial freedom is being able to live off our investments doing only work we enjoy, in a location we choose, and on our own schedule. In this post I’ll share how we transitioned our financial planning from traditional investing to creative early retirement income streams. This allowed us to achieve financial freedom, based on our definition of it.

The Transition

This transition all began with a huge aha on a crisp, early winter Saturday. The late afternoon sun brilliantly streamed into my cozy home office, as only late afternoon sun can do. That beckoning light always seems to be reminding us to seize the moment. Because, yet another day has passed, along with all of its fleeting potential opportunities. Only on this particular day, which included the scheduled task of updating our investment accounts, I was looking at the results of an entire passing year.

The Dilemma

I couldn’t help but notice the serendipitous, yet much bigger message that beautiful sunshine delivered right to my consciousness. I hit the sum button to total our year end net worth: another year had passed, along with all of it’s opportunities to grow our investments. In my mid-forties at the time, and my husband near fifty, I was becoming increasingly aware of a seemingly far away, yet never quite far enough away obsession that keeps many Americans awake at night. The good ole retirement account, and the “Will I have enough money?” dilemma. You know it, right? It’s the often-avoided fixation that triggers a love/hate relationship more than wine, workouts, or designer purses.

The Plan

Throughout my entire lifetime, the traditional investing I had studied and practiced had been about stashing enough money to retire around age 65, and live off the money that I saved. The more frugal (i.e., cheaper) you were, the better, both now and later. You simply planned for your retirement account to grow at about 8% a year on average. Do this while being diversified between stocks and bonds. You would save enough to withdraw 4% a year, which would be more than offset by the growth in your retirement account of 8% on average. It all sounded like a very solid and doable plan. And it could work well over long periods of time, or for those who chose to live on little.

But we had just gotten back to break-even following the early 2000’s stock market annihilation (that saw the ever beloved NASDAQ drop 76% and the S&P 500 drop 43%) over the past decade. Plus, I had managed our family investments while raising our boys. All while my husband had run an international trading company in Bermuda. Afterward, he was trading securities and consulting. We would have two sons in college soon, and were planning for this family expense.

The Epiphany

I did some math, and played with a few investment calculators. Then I had my big epiphany: even though we had very respectable investment accounts by most standards, the traditional retirement plan was simply not going to work for us. This was based on using our current trajectory, unless we significantly reduced our lifestyle spending, and also worked longer than we wanted. When faced with a problem, my mind goes to work for a solution immediately.

So, I began brainstorming how we could maintain our standard of living while having our money outlive us. I couldn’t help but think that many late midlife investors must be in the same boat following the stock market tech bubble burst. And I wondered when the stock market would surprise us with another big drop. (In hindsight, the 2008 huge stock market and real estate correction added insult to injury. This further damaged boomer retirement accounts, making the insights below even more important!)

Investing Opportunities

I thought of every scenario to restructure our investments so we could reach our goals of financial freedom, a.k.a. retirement, way before age sixty five. My dad, who inspired my passion for investing and taught me a lot, had accomplished this with a brilliant mass purchase. The purchase was of deeply discounted municipal bonds with stated interest rates up to 25% tax-free! This set my parents up for bond income for a decade and a half. And capital gains as the bonds were called after interest rates rose.

I didn’t see any such obvious opportunities that captured trends, and established both significant income and capital gains from investment capital. It was a rare opportunity. It included years of spending a just little time each week reading the financial news prepared my father to act with diligence and confidence. Hence, I learned the true value of financial education. More investing opportunities will always happen over time for those who are prepared.

The Desire

For us, we knew that we were at a phase in life where we did not want a lot of risk in the stock market. With interest rates low, intermediate and long-term bonds seemed equally risky. (Little did we know how long low interest rates would last!) We no longer had the luxury of long term wealth accumulation from compounding investment accounts over two or three decades. Yet, we still wanted to have a chunk of our investments in stocks, bonds and commodities with a passive yet proactive asset allocation.

Wealth Brainstorming

Perhaps I should return to corporate, I thought. It was a great time for a real job with my sons in their teens. But we had both done corporate, and built someone else’s businesses. Plus, the reason I left corporate accounting in my twenties as soon as I could was to be my own boss with a flexible schedule. Additionally, there was much greater income potential in commercial real estate.

I had learned after moving overseas to attempt to be a corporate wife that I LOVE the stimulation, challenge and personal development that comes with work. This fueled my investing passion and role as the family investment manager. Yet, I wanted to be able to walk my yellow lab in the woods at noon, and continue my crazy three-week road trips with my sons. I wanted to jump in my Sequoia to visit my Mom in Mississippi. Leaving the house at 7 am and returning exhausted at 6 pm fifty weeks of the year did not appeal to me one bit, So, I returned to wealth brainstorming.

The Intertwined Two

Then suddenly it hit me. The missing piece that is usually not addressed in traditional wealth management and financial planning, yet almost all wealthy people were doing it. It is focusing on income and building assets through business ownership of some type. It was crystal clear that while traditional investing was super important, increasing income was the other equally important element to wealth. The two were beautifully intertwined by capital (or savings), skill assets and wealth accumulation.

Our Focus

Even though I had no idea where to begin, I knew from that moment forward that increasing income would be our focus. The late midlife aha changed our lives in many ways. It was a complete paradigm shift from thinking of financial security as only coming from stock and bond markets that were more passive, yet out of our control, into creating our own financial security by adding income streams to proactive traditional investing.

Generating Income

If you are pursuing financial freedom, I would encourage you to consider creating income streams before your retirement years that will carry you through your later years in the lifestyle to which you are accustomed. There are dozens of ways to generate income streams. Many of them require little time and relate to traditional investing. Such as: stock dividends, and others require more time and new skills. It all begins with a decision to create and own your financial future.

In the next few posts, I’ll share the strategies I put in place. The good, the bad and the ugly of the story that transpired for my husband and I after my income epiphany. In the meantime, brainstorm how you’ll create financial freedom in your own life. To get you started, grab my Early Retirement Income Ideas Evaluation handout

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