One of the key components of self-sufficient living is being able to cover for yourself financially without having to rely on an outside job.
Stop Relying on an Outside Job!
Frugal living is part of this. The lower your monthly bills are, the easier it is to make enough money to cover them. Things like using cloth diapers and learning how to wash your laundry with cold water are a couple of frugal ideas.
Creating multiple income streams is another way to help yourself break free from an outside job. This post on 6 multiple income streams can help you come up with some starting ideas.
You need to develop long-term strategies in order to stop having to rely on an outside job. Some things cost more now, but will save you money in the future. A couple examples are paying off your mortgage early or adding a solar panel array on your home. It might be hard to pay for now, but it will lower your monthly expenses tremendously in the future.
And, of course, there is passive income.
Passive income is an income that you get on a regular basis, but you do not have to do much (or anything) to get it. One of the ways to set up a passive income stream is to use money you already have available to make interest. This, of course, means you need money to make money, but it is a good goal to work towards. There are three ways to make interest on your money:
Passive Interest Income: A Savings Account
Money market accounts generally have higher interest rates than regular savings accounts, but they also sometimes require a minimum balance. This will provide the lowest interest rate, but you have full access to your money.
I cannot say enough good things about Capital One 360 if you are looking for a new bank. The interest rate is a lot higher than our local bank. And, we can still access our money through free ATM’s and deposit checks via our phone. They also have a sign up bonus right now ($50 for checking and $25 for savings).
That said, the interest rate (and therefore the amount of your passive income) is not as high as the next two options, but you will have full access to your money this way.
Passive Interest Income: A Certificate of Deposit (CD)
A CD or Certificate of Deposit usually has a higher interest rate, but it comes at the cost of you not being able to touch your principle until the CD “matures”. In other words, you promise the bank can keep your money for a year and they promise a higher interest rate.
Now, you CAN get your money out at any time, but you will lose any interest on that money.
I will recommend Capital One 360 for this one too since I am familiar with them. You can choose to get your interest whenever you want. What that means is you can give them the principle amount and then have them send the interest to your savings account to spend as needed. The perfect passive income stream!
A CD ladder can help if you need access to your money. To set up a ladder, you just buy a 3, 6, 9, and 12 month CD then roll them over to 1 year at the end of their term. You will have a CD maturing every 3 months this way. When it matures you can either withdraw the principle or let it roll-over (or renew into another CD). This way, if you need the principle you know that you can access it in 0-3 months.
Passive Interest Income: Dividend Stocks
This is the most risky, but comes with the highest gains. A dividend stock is one that you purchase and it gives you a “dividend” or a percentage of the stock price each year or quarter. You can choose to have this dividend “roll over” and purchase more stock or you can choose to have it deposited in your account.
Dividends vary. There are stocks that pay 1% and stocks that pay 30%. Most are quarterly, but some pay on a yearly basis.
The stock itself can (and will) go up and down while you are holding it so your principle amount is not as well protected.