Personal Finance Roundup: Issue 3

Welcome to anothr Round-Up here at Planner At Heart! I’ll be posting an article each week with summaries and links to the finance stories we enjoyed from the previous one.  And no, you didn’t miss one from last week! Truth be told, pandemic parenting and taking the day off to watch the inauguration with my kids just caught up to me. So this Issue is chock full of two weeks’ worth of information!

If you missed my announcement about this new section, hubby and I have challenged ourselves to see how we could ‘FIRE by Fifty’ in a high cost of living area (HCOLA). We’ve been doing a lot more financial related investigating instead of watching shows at night.  It’s been really interesting to read different ways to Achieve Financial Freedom. Partners in Fire has a fantastic Ultimate Guide to Achieving Financial Freedom that’s a great read.

Since we live in a HCOLA area, if we want to retire early in our current home and region, we’ll need to build income streams outside of full-time jobs or “wage work.”  While many people reach FI or FIRE by downsizing or moving to a cheaper cost of living area, we want to find a way to stay where we are. Perhaps after our kids go to college or graduate college, we’ll reevaluate, but we see our near-term future right where we are. 

I feel like 2021 is going to be the year that we identify, explore and perhaps try out some of the ways you can build income streams outside of traditional jobs. Let’s took a look at some I’m been reading about lately.

What’s an Income Producing Asset?

Before we jump into some income building ideas, let’s get grounded in exactly what I’m talking about!

“An income-producing asset is something valuable that you can own and that has the potential to make money. Sounds pretty simple, right? That’s because it is. Don’t let the formal sounding name make you think it is something out of reach.”

High Income Skills

Marjolein at Radical FIRE wrote a really great article about high-income skills. If we are looking to cut back the number of hours we work, or build income streams that eventually need less time and attention we’ll need to build some new skills or focus more of our time on those with a higher return.

Hubby’s degree and career to date has been software development, one of the highest paying skills mentioned. He’s been brainstorming additional ways outside of his day job that he could leverage his skills, knowledge and experience into another income stream. Stay tuned to see what he does in 2021!

One of the reasons that I started this blog was to expand my skills and experience outside of my Marketing Communications and Public Relations career. I thought about taking classes in SEO and social media marketing, but I decided to jump into it and learn as I go. While I’m still less than a year into it, I’ve learned so much, started to use my SAHM adult brain again, and I’ve gotten some small freelance opportunities to put my existing writing skills to work.

Selling Put Options for Monthly Income

Investors looking to magnify their investment returns and generate a new passive income source can consider selling put options.  Special thanks to Rick Orford who wrote the below section, as this is not a topic I can speak to.

A put option is a contract that gives the buyer the right, but not the obligation, to sell an underlying stock, at a specific price (the strike price), to the put seller, at any time up until the expiration date. And the buyer pays the put seller a premium for this contract. The option premium is the passive income the put seller gets to keep.

What is a Naked Put, and how does it work?

Put sellers believe a stock will close ABOVE the strike price at expiration. Should that happen, the option expires worthless, or “out of the money.” When selling put options for monthly income,the put seller agrees to buy the underlying stock at the strike price, times 100, times each contract, should the buyer choose, at any point before the expiration date. As a result, it’s essential to sell put options against quality stocks or ETF’s that you’d be happy to own.

Put option example

Today, on January 18, 2021, the SPY (a common S&P500 index fund) sells for $375. A put seller thinks that over the next 30 days, SPY is on it’s way up. The put seller “sells to open” 1 “Out of the money” put option against the SPY that expires on February 19, 2021 (in one month) with a strike price of $365. The put seller received $476 in option premium (passive income) that they get to keep in exchange.

Investors selling put options will face two potential scenarios:

Scenario 1

On February 19, 2021, the SPY sells for $359. The option is “in the money,” and the put buyer exercises the contract. They sell you 100 shares of SPY for $365 (the strike price). You’ll have an unrealized loss of $6 on the SPY, but, in this case, the income helps limit the loss. As long as you don’t sell the shares at a loss, you won’t lose on the shares. And, as the put seller waits for SPY to go back up, they can sell covered calls against their newly acquired SPY ETF.

Scenario 2

On February 19, 2021, the SPY sells for $370. Thus the option is “out of the money.” In this case, the option contract expires worthless, and the option seller gets to keep the income. Regardless, the option seller can repeat the trade as many times as they’d like.

For more details on this topic, check out the full article from Rick below

Investment Properties for Income

One of the passive income avenues we are exploring is purchasing a rental property, as it is mentioned in almost every Financial Independence article.

Boy, this one is hard! I don’t know if it is because of the madness of the housing market right now but it is really difficult to find one that cash flows. We’ve got two friends who we are working with, an army of real estate agents, and some monster spreadsheets, but we haven’t found one yet.

I really appreciated Susie Q’s article that interviewed three of her friends who are real estate investors. There’s some great honesty in the below article. Check it out if you’re interested in real estate investing too!

Thanks for joining me this week! I hope everyone is staying safe, healthy, and sane. See you next week for some more highlights of awesome personal finance articles.