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I’m not able to pay all my bills by passive income yet. But that doesn’t mean I haven’t made any progress.

In theory, we know that passive income can help you pay your bills. But what does it actually feel like? Well, here’s a glimpse I’ve had this month…

I’ve been trying to put work on autopilot this summer, to take a lot of time off and hang out with the family. At the end of this month, I realized I hadn’t gotten a lot of work done and the finances were getting squeezed a little. Just as I was thinking, “man I better go do some projects,” I checked my online banking and a few bits of passive income had just hit my account from various investments… and bam, just like that, my spreadsheet was healthy again. This was a cool feeling. You can tell someone how fun it is to ride a bike, but until they’ve actually DONE it, it’s meaningless. I think the same is roughly true for passive income – actually feeling it means so much more than just talking about it.

I still have a long way to go before the numbers are more substantial. But I’m glad I’ve got some emotion behind my motivation now. That was a super cool feeling!

I care much more about analyzing my finances in a theoretical “bad year” than I do in a good year. Why? Because the bad year (a low income year) is the one when my lifestyle would be threatened. In the good year, nothing is threatened. So, I think of my good years as “future proofing” seasons when I do what it takes to get life ready for the inevitable bad income year.

This is in contrast to most people who look at good years as a time to prepare for retirement. For me, the primary goal in a good year is to prepare for the bad year before retirement. The secondary goal is to prepare for retirement. And the holy grail is to do BOTH at the same time, which, thanks to this awesome discovery, is possible.

Why am I so worried about the bad years? Because…most people, if they have a bad year, either have a TON of stress, or they have to go work MORE, or in CRAPPIER jobs. I don’t want to do either. In a bad year, I still want to be able to enjoy life and enjoy my family. So preparing for the bad year is super important. I’m self-employed, so my income varies, so it’s even more important. But even someone with a regular “job” could lose that job and be forced to get a terrible job, if they aren’t prepared for the bad year.

So, what are some things you can do when income is good, to prepare for the bad year?

  • Pay down debt
  • Get reliable cars
  • Make big house repairs like a new roof, so these don’t hit in a bad year
  • Develop streams of passive income
  • Streamline and consolidate core expenses
  • (these are just some examples)

Another important thing to do, is to optimize your tax situation for the bad year. One thing I’ve been focusing on a lot is trying to hold investments that pay qualified dividends, in my taxable account. This is because, in a bad year, my tax bracket will be lower and these dividends will be taxed at a rate of ZERO! Yes, the US Government currently taxes qualified dividends at ZERO, if you fall below a certain tax bracket.

On the other hand, T-IRA income is always taxed as ordinary income, so you should go for the highest return investments, not those which are tax advantaged.

So, knowing how to invest and plan in good income years, in preparation for the bad income years, is an important step. It’s kind of like, if the sun is shining and the weather is good, you start preparing for winter. You need to know what winter will bring – cold, snow, wind. You need to know how to prepare for these things. Same thing with money. You need to know how your tax situation will change in a bad year, and how to optimize for that.

Error Halted System Disconnect Caution Concept

This blog post was a big “ah ha” moment for me.

Lately, I’ve been having a really hard time getting work done in my home office. After careful thought, I’ve realized I actually don’t mind doing the work. The thing I mind is being away from my family.

In agrarian society, if I worked my own farm, my kids would be intimately involved in running the farm. They’d be with me, learning, relating, together. Maybe not all the time. But a lot of the time.

After the industrial revolution, and especially now with the tech revolution, we instead “go” to work. We leave our families. We disconnect. We partake in some advanced work that’s too “complex” for children to do, in a workplace where children aren’t allowed, miles away from where our children live. Even if we work from home, it is often work that requires us to shut ourselves away from our family to concentrate and peck away at a computer screen sending digital signals off into cyberspace (who cares???).

In striving for work flexibility and financial independence, I realize that this problem is actually what I’m out to solve. If I lived on a farm, I’m not so sure I’d care about work flexibility and financial independence, because I’d be with my family on a regular basis. But because I don’t have any farming skills and I don’t own a farm, it seems that the only way to truly be around my family as much as I want, is to have flexible work.

This blog post is such an “ah ha” moment for me because I used to think that my motivation for wanting passive income, and early retirement, was so that I could stop working. Right? I mean, isn’t that why people want passive income and early retirement?  So they can stop working? But after really seeing this new way of looking at it, I realize that I don’t want to stop working. I’d be happy to be working and productive for the rest of my life! I just want to stop working in front of a computer screen away from my kids. I’d much rather be working outside, with my kids, teaching them about life and how to do stuff. If I get done with the day and I’m sweaty and tired, that’s fine. Hard work isn’t the problem. The kind of work is the problem.

I yearn for the day when my work will be more connected with my family, like taking my son out and teaching him how to hunt, or plow a field – I yearn for a time when the paths of work and family cross. I don’t foresee it happening any time soon, so in the meantime, I’ll try to accomplish my goal (spending time with my family) by having work flexibility.

I admire and often think of another blogger who, after achieving some degree of financial success, bought a farm, and pretty much went off the grid. He decided he didn’t want to spend all day looking at a computer screen, (or fill in the blank advanced tech job), so he hardly ever checks his email and only does bills, and other online chores, occasionally. He spends the rest of his time outside (imagine that!) with his family. It’s funny how I’m reading about more and more people doing this. I really suggest you click on that link above, because he does such a fantastic job of explaining why he left spreadsheets and computer screens behind, in search of nature and in his case, a farm.

It’s sort of this idea that when you’ve made enough money, you can afford to pretend that you live in the 1700’s and get back to a natural way of living. While I don’t foresee myself following this path anytime soon (maybe I don’t have enough guts?), there are baby steps I can be taking in this direction. The first step, for me, is a flexible schedule. The 2nd step is less consumerism, so I can rely on money less. The third step is optimizing our finances (passive income and a solid financial plan). I’d actually say, also, that camping plays a big role in this process – it puts me in a “temporary” agrarian setting where my family are all connected and working together on basic, physical tasks for that day’s work. And it’s no wonder that camping is the one activity which rejuvinates me and and makes me feel closer to my family, than any other activity.

I think the desire to get away from “modern work” is only getting stronger year by year, with new generations of workers. Why? Because work is becoming a bigger and bigger part of our lives. 30 years ago, yes we went to work, but we didn’t bring it home with us. We disconnected from work more often. But now, we are always connected to work – we are always checking email and sending meaningless digital signals off into cyberspace, at all hours of the day and night. So, as we become more out of balance with nature and family, we commensurately crave that balance more intensely.

In conclusion, I think this is such an interesting area to examine. Our work lives – where we spend SO MUCH of our waking hours – are so disconnected from our families. Is this how it’s supposed to be? Should we give in to society’s new, industrialized, definition of “work”? What can we do to take our power back and design a more natural life where everything is integrated? Some questions to ponder.

Ultimately, I think the goal for me is to make family time, nature, being outside – the goal is to make it so that these things aren’t just things that happen on evenings and weekends. They are THE things that I fill my days with, instead of things I squeeze in between the insanities of daily life.

(This post doesn’t apply to people who are just trying to make ends meet, who can’t put food on the table. It applies to those of us who are already doing that. However, it still does apply to you are in the lower middle class and put food on the table but aren’t rich.)

I think many of the ills of the American man can be traced back to the “store up nuts for the winter” instinct gone haywire. Don’t get me wrong, it’s an important instinct! If the squirrel doesn’t store up food, he dies. If the primitive version of man (back in the cave-man era) doesn’t think ahead, he dies too.

But the instinct is so strong, that it might keep running and not be turned off, even after the job is done.

Truth is, unless you are super-rich, you just can’t know for sure if your job, your savings, or your investments will provide for you for the next 10, 20, or 40 years. You can work hard, be smart, but you just don’t know. Any number of things could happen. But even in some worst case scenarios, like losing your job, chances are, you’ll still be able to provide your family with the basic necessities of food, shelter, and some fun.

Yet, we toil. We toil away, trying to get some insurance that the coming decades will be secure. Often, our toil doesn’t even provide further guarantee, or if it does, it’s at a great price – the sacrificing of the present.

I’ve seen this error play itself out in the lives of loved ones. They work work work, hoping to secure a better tomorrow. But what they don’t realize is, their work has already bought all the security it can by. Things like calamity, premature death, business catastrophe, and other problems, will wipe them out, even if they keep toiling. In other words, their continued toil isn’t helping them buy future security. It’s just the survival instinct gone haywire – out of control, unchecked.

I think this is why it’s so important to really evaluate what makes us happy. Usually, it’s the cheap things in life. Then, we have to ask ourselves, “have we done enough work for today, this month, or this year?” And, “will more work really buy me what I want – more security?” And, “is more toil really worth losing out on the present moment?”

Yes, indeed… the instinct to store up nuts for the winter is running rampant in men. Some of these men can easily afford their basic expenses and have a pretty good probability of being able to do so for the coming decades, but they sacrifice EVERYTHING to get just a tiny bit more security. 

It’s a funny thing, in our culture. Retirement, that is. And just the basic organization of the years of the human life.

When we are in our prime, and have young kids, we tend to be consumed with abstract goals like “saving for retirement” and “buying a house” and “saving for kids college.”

These things are important, but abstract. None of them have true, real-life consequences. At least, not in the present time.

The reason this is so important – and I’m just now realizing this – is that your kids are only young once. I used to think that my relationship with my kids would only become deeper and richer the older they get. And, I still feel this to be the case. But something happens as kids get older. They become more independent, and parents have less and less influence and role in their formation. A 20 year old is much different than a 7 year old.

Lately I’ve been just wanting to savor my kids’ youth. This is the time when I can really invest in them and build a foundation for the rest of their lives. Everything from the relationship they have with me, to the hobbies and activities they do, to cultural/scientific/traveling adventures I can take them on.

These are moments I’ll never get back. If you remember being a kid, you probably remember your parents taking you on various vacations and travels. I know for me, those early experiences were so formative for me, in how I perceive the world and the person I’ve become. Taking a 20 year old on vacation is still fun and great, but it isn’t as formative.

If I’m rambling, I’ll get to the point. I don’t want to structure my life so that my prime years are spent on abstract, future-focused goals. I want to spend my years in the now, with my kids and family.

Yes, this may mean I don’t get to all the goals I had in mind. But is that really such a big deal? There are many ways to go to college, and many ways to succeed in life without going to college. And as for my own retirement savings, who knows how long I’ll live or how much I’ll need the savings, anyway.

We just need to wake up. In the USA, we live so much better than the rest of the world. We have running water, shelter, activities, police, hospitals. Why should we piss away our lives just to get from 95th percentile of quality of life worldwide, to 97th percentile, where we have a retirement account and college savings for our kids? It’s not worth it to me. Kids need us now, when they are young.