My Journey to Accumulate Passive Income
After 29 years of life, finishing four years of college, four years of graduate school and three years of professional training I final felt like I was able to develop sources of passive income. During my years in education and training I have increased my liabilities with hundreds of thousands of dollars in student loans with interest rates ranging from 6.8-8%. When trying to refinance my interest rates through Fedloan all they were willing to do was to consolidate all the loans to the weighted average of the current interest rates. If you have the chance to do this do not do it! It is not beneficial in the long run and limits you ability to pay off the higher interest rates first. I have since refinanced my loans through SoFi (Click here for review) with a ten year loan at 5%.
This lower interest rate, while higher than I would like, has enabled me to look at investments with projected long term rate of return of higher than 5%.
During my three years of professional training I was making a small salary and benefits were included. One of the benefits was a 401K with 6% match. Even though I did not have enough money to pay off the interest every month with my salary I put in 6% of my income each month. If you ever have a 401K match I advise you to do this as well as it is an immediate 100% return on investment.
This 401K plan was my first passive income investment. It was through ING now Voya. The problem with 401K plans provided by an employer is that you have no say over the stocks and bonds that are available for investing. Unfortunately the ING plan did not have desirable investments and had high expense ratios.
I became an independent contractor and retirement funds…
I then became and independent contractor for various reason including the tax advantages and control over my benefits. As an independent contractor since you are self employed either sole proprietor or through incorporation you get to choose where to open your retireent accounts (SEP IRA or a solo 401K). Each of these are only available if you are not employed. Each provide for up to $53,000 or 25% of your income from your contracted positions for that year. The amount one can contribute depends also depends on business entity (i.e. sole proprietor vs corporation).
After research I decided to open an account with Fidelity because it enabled me to invest in my desired funds that had low expense ratios. The downside with Fidelity is that since my desired funds are not Fidelity funds there is around a $7 fee for each trade. Fidelity does, however, have promotions for free trades in each account depending on how much money you invest with them.
Prior to funding the SEP IRA I decided to roll over my Voya into a roll over IRA with Fidelity and then roll that into a SEP IRA (I did this so that I could easily convert the SEP IRA back to the roll over IRA if advised by my CPA for tax reasons). I then opened up a nondeductible traditional IRA because I did not qualify for a SEP IRA due to income restrictions and decided later to roll that over into the SEP IRA (“Back door Roth IRA”). I then opened up a my SEP IRA.
I advise you that if you are in a higher tax bracket to take advantage of your retirement funds to lower your taxable income. It is also a good vehicle to take advantage of compound interest since it is non-taxable while in the account.
If you have any questions about retirement accounts please comment below and look for future content.
Brokerage Account, Wealthfront
Since retirement accounts cannot be accessed without fee until your 60s I decided to look for other sources of passive income. I did this not only to diversify my asset portfolio but also to give myself the option in the future to retire prior to reaching my 60s.
After researching brokerage firms I new that I could open brokerage account with Fidelity but decided against that after finding Wealthfront. I did this because Wealthfront provided desirable funds at a low expense ration. Wealthfront also provides:
- Free trades
- Tax losses-Harvesting
- Direct indexing for accounts over $100,000
- Rebalancing of Asset allocations
- Free asset management for accounts less than $10,000 (you can get free account asset management for less than $15,000 if you click on the following here)
Full review of Wealthfront to follow…
Peer to Peer Lending
I decided to become my own bank and invest in loans to other people with Lending Club. There are restrictions to this investment because there is a higher risk than with stocks and bonds. That being said I decide to invest a small amount of money into this account to try it out. At Lending Club the goal is you buy a small portion of each loan note. The sum can be as small as $25. If you decide to invest with Lending club I advise that you do not place more than $25 into each note as they can default on you and you lose the principle that you put into the loan.
My goal is to make between 9-11% off this investment through picking up the “riskier” loans. I choose the “riskier” loans because I want my investment to make more than 5% given that my student loans are 5%. I am also younger so I can recover easier from higher risk asset allocations.
Full review of Lending Club to follow
My Online Business through Wealthy Affiliate (Click here for my review)
My newest addition to my passive income portfolio is still a work in progress. My online business. If it was not for the training of Wealthy Affiliate I would not have know where to begin to set up a website.
The training from provide through their training course “tricks” you into creating you very own function website, teaches you to develop an understanding of SEO (Search Engine Optimization), and gets your domain indexed in search engines like Google. Please read my get started page and review for more information.
Please drop me a comment below with any questions, suggestions, or if you need help getting started.
Your Passive Income Advisor