The Grumpstump

A popular subject this week among several of the personal finance bloggers has been the crossover point.

Loosely defined, the crossover point is when your passive income exceeds your monthly living expenses and work becomes an optional activity.

The Simple Dollar wrote a good article describing the basic concept of the crossover point and Get Rich Slowly followed it up with another great guide.

If you want to find your crossover point, a nifty little calculator has been created called What’s My Crossover?

The one thing that I found lacking in the discussion is the role that passive income can play in reaching the crossover point. The only examples used involve income from an investment account. Trent and JD did a fantastic job of covering the investment side, so please check them out if that’s your angle. However, more and more I’m realizing that there are much easier ways to generate passive income.

Remember, the goal is not to have X dollars in the market or X houses or X Treasury Bills. The goal is to have enough passive income to quit work. If I can create something that makes me money every month with minimal additional input, bingo! Passive Income.

Here are two Real World Examples:

• Say you build a squidoo lens or other online content that produces cash.
  • When you receive your first payout for the lens, it is $2.00. Yayyy!
  • Each month for the next year you earn (more or less) $2 for your lens. That’s $24.00 a year. In order to earn $24.00 a year with ‘aggressive’ investments that make 10% on average you need $240.00 in the bank.
  • With an online savings account at 5% you would need almost $500 ($480) to produce the same result.
  • At this point in my life it is easier for me to create a lens then put $500 in the bank.
• You have a rental property that makes $100 /mo. after all PITI and other expenses.
  • This is the same as having $24,000 in a high yield savings account for cashflow purposes.

I would rather have the options that cashflow present than the security (insecurity) that can come from having all of your assets in accounts you realistically can’t touch until retirement without massive penalties. Obviously, I’m still saving in retirement accounts etc. but there is more than one way to skin a crossover if you think outside the box.

/grump