Welcome to another round of Reader Mail: Earn More Edition!
Today’s letter comes from Carolyn in Georgia.
You may remember Carolyn from an earlier post when she asked about creating passive income and traveling the world. Today she asks about becoming “location independent” – working from anywhere on the planet, as long as you have an Internet connection.
Carolyn says:
“I turned down two job offers in D.C. because I knew that wasn’t the lifestyle I wanted. There’s nothing that I could want more than to write on my own and become location independent. That’s why I took the easy day job in June to figure out how to make this possible.
So here’s the question that I’ve hesitated to ask but am dying to know the answer – How do you do it financially? I’m sure people ask you all the time, and I feel like I’m asking some huge secret to success. I’ve seen the few advertising spots on the footer of your pages, and I know you do one-on-one coaching, but certainly there’s more?”
I like that you put the phrase “huge secret to success” in your question. There’s no secret – although you might say there are plenty of secrets, plural.
Our cultural myth says there’s one solution: the Silver Bullet. The Holy Grail. Prince Charming.
This myth is convenient: Problem, solution. Villain, hero. Life will be great as soon as we find Superman / Sherlock Holmes / the winning lottery ticket.
Thanks to this myth, we say things like “I need to invest in the Next Hot Stock,” when in reality we need to invest in 500+ stocks, the majority of which grow profits and shoot out dividends.
We say “I need an awesome real estate investment,” when in reality we need to create several awesome real estate investments and invest in the market and earn a kick-butt income and not spend too much and legally minimize our taxes.
Funding my location independent life is a bit like finding college scholarships: I enjoy multiple streams of income.
[UPDATE 2015: I now generate enough passive income — via real estate investments — that this money alone can totally support my cost-of-living. The rest of this article, below, was written back when I relied on my freelance/online income to pay the bills. If you’re in that boat, enjoy this article – I hope it helps. 🙂 ]
One client pays me to edit their weekly newsletter. Another client pays me to write two articles per week. There’s even a print magazine that asks me to write one story per year, during the holiday season when they need all hands on deck. It adds $600 to my pocket each December — enough for a plane ticket to somewhere warm.
Our mind can only track a limited number of tasks. The key this successful juggling act is that I charge what I’m worth. I won’t waste my time on projects that pay a pittance.
Run Your Life Like It’s A Catering Company
Imagine that you run a catering company. Each year you cater some massive event like the Wimbledon Championship parties or the SuperBowl box seats.
This annual event earns your business all the revenue it needs for the year: enough to pay your staff, pay yourself, and cover your overhead.
You could cruise the easy road and not look for any other jobs. You could bust your butt one month a year and relax the other 11 months.
But this would be foolish. Your company’s success or failure would depend on a single client. If they drop your contract, you’re screwed.
So you diversify your income. You start catering weddings, graduations, reunions. They’re less lucrative contracts — more work for less money — but they provide a buffer. If Wimbledon drops you, your company will survive.
Any business owner would do this to protect his company. So why don’t individuals do this to protect themselves?
Why do we put all our eggs in one basket — relying on one employer for 100% of our income — rather than diversifying into multiple income streams?
Here’s The Huge Secret …
Most of the world sees self-employment – and a location independent life — as unstable. Most of the world is wrong.
People who have only one source of income — their full-time job – stand on shaky ground. Every dime hinges on just one “client,” their boss. If they get fired or if their company collapses, they’re screwed.
I have multiple streams of income. I’m diversified. I could lose a client and be fine.
But there’s a paradox that comes into play. It’s called the Pareto Principle. This principle – also known as the 80/20 rule – states that 80 percent of your results come from 20 percent of your efforts.
In other words, 80 percent of your income will come from 20 percent of your clients.
There’s a natural tendency for this to happen. I have a few high-dollar clients – my 20 percent – that pay substantially better than the rest. I put a high priority on making sure these clients are happy. But I also pad my income enough so that I’m not dependent on them.
Losing my best clients would be a bummer. But I’d be fine because I minimized my dependence on these clients – minimized my risk – in advance.
At heart, this post is about risk management. There’s no Silver Bullet or Superman.
The Bottom Line:
A single income creates dependence. Multiple streams of income gives you flexibility.
****
Read a Related Post: The Time Paradox: A Surprising Way to Prioritize Your Life.
Thanks to Scott Feldstein and Jason Theodor for the photos.
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Great post Paula! I totally agree with you. Having multiple streams of income (no matter how small they might seem) is the smart way to succeed financially.
I also think that another part of the “secret to success” is the choices we make with that money we do get. I drive an older car because I refuse to take on more debt in the form of a car loan. But my home is important to me and I used my savings to build a new house this year. Everyone has their own thing that is important to them so if consumers (myself included) could stop wasting our money on silly things, we would be surprised at what we could really afford!
@Jenny — Absolutely!! I like to tell people that you can afford anything — but not everything. There’s a trade-off when you spend your money: every $1 you spend on your car / late fees / premium cable is $1 less that you can spend on your home / travel / quitting your job.
Very true. Your answer illustrates how different perception and reality is. The reality of the independent entrepreneur is varied, but it is multiple income streams.
Well put. Income diversification is as important if not more important than investment diversification. Everyone knows about the latter, but few discuss the former.
I guess because it’s outside the box, and mainstream media doesn’t cater to niches.
I understand from this article that you are diversified across clients, are you also diversified in different industries, income type, or other forms of diversification?
@Brave New Life – I’m surprised by how few people discuss the importance of diversifying income — especially now, as the U.S. faces such huge unemployment and under-employment numbers!!
I diversify my income not only by working for a variety of clients (as a journalist and writer) but also by being in the property/real estate world. I get paid to manage one property on my street — it’s just down the block, so it takes me very little time to go there to do a showing, as compared to someone who lives further away and would have to battle traffic to get there.
On top of that, I earn income from my own rental property. Right now I choose to re-invest my gains back into the house, but that’s fundamentally a choice. The house is fully occupied, so I don’t HAVE to reinvest … but I believe that by making capital improvements to the property now, I’ll be able to further raise the rent later.
I like your analogies, Paula. Beautifully put.
TMG
Very true. I have been struggling with this lately as well. I have a job that I like and pays me well. But I would like to do more and be more independent. And I would like to take a break for health reasons. The only thing that is stopping me is the uncertainty that comes with self employment. So many what ifs. What if I never get any ads for a few months, what if all the traffic dies on my site… I know there are uncertainties with a full time job, but that seems more stable than self employment.
I think my problem is I have my income from self employment coming from one major source. Recently after the panda update it was a good wake up call for me. I have been trying to diversify. I will take a income hit now to have more diversified income later. That should give me some courage to plan better.
Great post.
@Suba — A lot of people are hesitant about the uncertainty that comes with working independently. My general advice is #1: have a good chunk of savings, and no debt other than a mortgage, before you make the leap; #2: live a lifestyle in which you’re spending substantially less than you expect that you’ll earn in your first few (leanest) months.
Even when you’re financially sound, the uncertainty of working independently is emotionally taxing. I’ve found that my biggest problem as a self-employed person isn’t managing money, it’s managing my confidence level. It’s helpful to have a support system in both the online and “offline” world that encourages you.
Brilliant response. Without even realizing it, so many people think we only have 2 options: work for a salary or be homeless. Love your Catering Company metaphor. Bravo, bravo, bravo.
@Barbara — Thank you so much! I checked out your site the other day and it looks like we have very similar philosophies. I look forward to continuing to hear from you and read your comments!
Sound, and should I say, timeless advice: develop multiple streams of income, and keep your clients, especially those that pay well, happy. This is my first time here, but I’ll be back. Well-done! 😉
@WP Ho — Welcome to the site and thanks for the compliments!! I can’t wait for you to return and voice in on some more posts!
I need to start doing this. And it sounds like a great idea even if you’re holding a conventional, day job.
Great article Paula. It goes back to the saying, “Diversification is the key to success!” It holds true in so many scenarios.
Another interesting post Paula, I’ve known this in my head for some time but its nice to see it all laid out on the table by someone else. Again, I’ve got a single big client who is sending me more and more money each month (and asking for more and more work) but I’m happy to deliver and keep them happy.
In addition to that, I’m using my web dev/marketing know-how to launch my own microbusiness selling an information product that will hopefully put a little more cash in my pocket. As you say, it might just be th $600 at the end of the year that equals a plane ticket somewhere.
It really is a strange thought that we are groomed from the age of childhood to invest so heavily in a single employer. Moving around is seen as a bad thing but having multiple streams of income really is much safer.
@John — Sounds like you’re living the dream! Diversifying your income, taking on different clients, trying new things, and learning a lot along the way. It’s nice when work feels like an adventure. 🙂
This is the best post I ever read! I´ve done a lot of this but I´ve 2 problems:1-how do you stop from feeling bournout?
2- many of the jobs I take don´t pay me well or tornout to be schemes.How can beat desapointment, emotionally and finnancially?
thanks
@Sandra –
1) Burnout is tough. There are two ways I try to avoid it. First, stick to doing things you’re passionate about — work that’s meaningful and that you’re good at. I very, very briefly worked for an engineering firm and hated every second of it, although there are millions of engineers and other tech-savvy people who would have loved that job. Conversely, I loved writing for a newspaper, but there are millions of others who would have hated a job that required them to write everyday. You have to find the work that’s the best fit for you and that you feel is meaningful or contributes to the world.
Secondly, it’s easier to burn out when you’re working toward someone elses’ goal. If you have your own project or your own enterprise, and you’re working toward a goal that you yourself created, you’ll find its easier to sustain your energy — especially as you progress, make your first sale, get your first good review, mentor your first student, etc.
2) I’ve fallen victim to a few schemes myself. The more you get to know how “schemes” work, the better you’ll be at avoiding them. For example: I never write any “revenue-share” or “ad-share” articles anymore. There’s nothing preventing a website from burying my article in the search results, or simply not accurately reporting what kind of ad revenue or clicks the article made. So I created a rule for myself that I’d only write an article for another website if it pays me a flat rate. And since I always produce top-notch work, I demand a high base rate — I won’t sell my work for a few bucks anymore. That takes time to build, but more importantly it takes confidence.
Great post. I love your blog, Paula. I’m Anti-Frugal myself! :-). Quick question, are you looking for more editing gigs? I have a project that needs editing- it’s an ebook.
These insights are very true! You have good point here “A single income creates dependence. Multiple streams of income give you flexibility.” I totally agree with you. And we must really keep this in mind if we want to keep moving and survive.