The Value of Investment Income: Part II

It’s Not Always About the Money

Hopefully, my first post on investment income gave you ideas of what you could do with some extra income. It may also have inspired you to think of what you could do to increase your wealth while having more fun. If so, then you’re on the right path!

My next post will help you look at using investment income specifically to build wealth. But for now let’s think about some smart ways that you might ‘spend’ investment income. We hinted at this in the end of Part I, but there are a lot of “outside the box” ideas we didn’t cover. These are ideas you can use to maintain, diversify, and build your wealth, while still having fun. Some of these methods may include adding to existing assets. Others may include investing in hobbies and other fun pursuits. For example, creating goods for sale or building a collection of something valuable.

Monopoly board with overlay "create value and enjoy the ride"

Are you playing to win?

Play Money, or Playing For Profit?

Our earlier example of models and action figures may have sounded like a stretch, but is it? Collectors of these items, and of sports memorabilia, comics, and antiques would say No. Collectible markets can be tricky and each requires the collector to do his research. But, if you can find good sources and negotiate prices, you can buy low. With trusted informational and appraisal services, you can price them to make a profit. In this way, collecting can be a lucrative hobby.

As with any investment I wouldn’t recommend sinking everything you own into a collection. Most people get started small and it builds from there because they get so much out of it.  For a wine enthusiast trading in classic Bordeaux, the hobby can be both tasty and lucrative. The car enthusiast building up a collection of hot rods can get more than just miles out of every car. The art-lover swapping coveted paintings can enjoy the search process and the art of the deal.

Maybe collectibles aren’t your thing. Maybe you like to create? Assuming the figures from Part I, what could you create with an extra $1,667/month. Maybe instead of buying art, you like to express your own artistic talents. You can build, design, or paint tangible items that can you can sell for more income. For some, offsetting the costs of a hobby is enough. Some people create art only for themselves, later to find that other people are willing to pay for it.

A 6500% Return On Investment

Just some quick personal anecdotes. I have had a lot of fun while…

…using spare time to build a piece of furniture. Later I sold it for almost four times the cost, after three years of use. Cost: $700, Sale price $2500

…working weekends on a collectible truck (1974 Ford Bronco). I had to put some money into it, but in the end I got $4500 more out than what I put in. Cost: $6,500: Sale Price: $11,000

…picking garage sales on weekends. I found antiques, researched them, cleaned them up, and sold them on eBay. I once bought a pair of saddle bags for $3 and sold them for $197. Talk about ROI!

Picture of handcrafted wooden and metal chairs

What could you create?

It won’t happen this way very time. You should also be wary of “get rich quick” schemes disguised as hobbies. But, if you make a hobby out of something you enjoy, having others find value in it is just icing on the cake. Having them pay you for it is a huge bonus!

Making Sense Out of Your Dollars

Maybe you would rather do things that directly increase your wealth. In other words, maybe you want to see immediate dollar-for-dollar improvement in your situation. Luckily, most people have plenty of opportunities to do this without even leaving home.

The first way to do this is to increase the value of assets you already own.

The most obvious one that comes to mind is your first home. There are two main ways to increase your equity in a home. The first way is to make extra payments towards your principal. This will build equity in your home and reduce your interest costs over the long run. Your first home is not an investment, but reducing the amount of interest you pay make it less of an expense.

Another way to build equity in a home is to make improvements. You want to make improvements that increase value by more than the cost of the improvement. A pool, although awesome, is not one of these! In fact, a pool is a good example of something that yields a negative ROI. Not only will you get less than you paid for it, it will cost you extra money each month to fill and maintain.

Alternatively, using extra income to fund an add-on can be a great way to increase your home value. For a growing family, it’s also a great alternative to buying a larger home with more debt. In general, the more you can limit your outlay, the faster you’ll build wealth.

There Are More Than a Few Ways to Do Make Your Money Work For You

If you want to fund your dreams, you must be open to using part of your extra income for things that may pay off in the long run.  If you’re open to using non-traditional investments, some of these ideas may be for you. This isn’t an exhaustive list, but get creative, do the numbers, and get started.

If you’d rather use extra income for a business venture or an investment, tune in to Part III.

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