Desperately seeking "passive income"
It is hard, there's no fast lane - but it's worth working towards.
Yesterday, a group of us met up at The Barbican Centre to talk about how we’re planning to finance our lives, how our thinking around this has changed over time — and what our approach to generating passive income looks like.
Passive income comes from one or more income sources, is generated regularly and requires little to no input from you. Crucially, it doesn’t involve you exchanging your time for money. Think:
Dividends from stock ownership (but there’s some work involved in picking the best stocks for this, and putting enough money into these investments to generate a good amount in earnings)
Rental income (although there’s work involved in financing and maintaining the property or item)
Revenue from the sale or consumption of something you have created (courses are popular, but so are books and video content)
We discussed the book The Millionaire Fastlane1 that talks about wealth creation through:
Earning a lot of money quickly (through starting a business) — for wealth creation
Using that to invest — for growing wealth
As opposed to:
Investing incrementally for longer-term wealth creation
Our conclusion was that, like many similar books, the author doesn’t deliver much substance. He is upfront, however, about what he’s doing. Which is creating something once (his book) and then relying on sales to generate passive income for himself. And exploiting people’s desire to better their lives.
But what it does well is light a fire in people who haven’t previously considered how they can have more agency over how and what they earn, and how they can live as a result — which acts as a motivator.
This inspiration is important. But what’s effective is coupling it with actual advice, learning from other people’s actual experiences and continuing to seek out information and apply it. It’s a process of focusing on your goals and doing stuff to achieve these goals.
It’s one of the things we encourage and support through this community - both in-person and through our WhatsApp group - and I love that we have a space to do just this 🥹
1. The buy-to-let property sector is becoming less attractive to investors
Landlords are baddies, or so the commonly presented narrative says. They just collect money like they’re playing Monopoly, and passing ‘Go,’ while pricing would-be homeowners out of the market.
But it’s not black and white.
For many, it’s a hard graft, with tenants treating their properties badly. When all they wanted is to generate an additional income stream to support themselves. And, without them, many people wouldn’t have somewhere to live.
In recent years, it’s become less attractive (and sustainable) to purchase a property on a buy-to-let mortgage in the UK:
Obviously mortgage interest rates are a lot higher, so the profit margin on rental income is smaller than it used to be
It used to be possible to lower your taxable rental income by the calculation: rental income less mortgage interest payments - this tax relief has been gradually phased out
New affordability checks have made it harder for landlords operating as individuals to borrow as much against a property as they could previously
These changes are going to be affecting smaller landlords far more than larger landlords operating under tax-efficient corporate structures, where they have bigger capital reserves and can withstand these changes.
And so the inequality gap between the Very Rich and everyone else will continue to get larger. Sigh.
2. The British ISA has been scrapped
We knew it was a gimmick, but the Labour government has scrapped the previous Conservative government’s plan to introduce the British ISA.
It would have given investors an extra £5,000 (tax-free) to invest in UK-listed equities. The idea was that this would act as an incentive to invest in British stocks, and would have increased the overall ISA allowance from £20k to £25k.
The pushback from the investment industry was that this added an extra complication to the ISA landscape, when the majority of UK adults don’t even have an ISA to begin with — this should be the real issue being addressed.
This week HMRC also dropped a ban on investors holding portions of shares (i.e. fractional shares) in ISAs — this should help channel more money into stocks.
3. How to know if you’re financially prepared to have a baby
Think about when you want to start a family
And then reverse-engineer the timeline and what you want to achieve
Remember, you don’t have to be a homeowner to be a parent
If you have a partner, start talking about how you want to parent together — and research what the numbers look like
Think about what support you have — and what your childcare will look like
Cost it out
Don’t just assume that your support system will be there — talk to people who you’re hoping will assist in some capacity and find out what they are willing and able to do
Add up your baby budget
There are types of baby expenses:
Gear (one-time purchases like a stroller, a baby carrier, a crib, and a car seat)
Supplies (ongoing expenses like nappies and formula)
Services (child care and health care)
Once you’ve added these up, round up generously
Give your budget a dry run
For example, if you want to take an extended, unpaid paternity leave, look at your household budget and see how works with one salary instead of two
If you’re pregnant, start setting aside what your day care or nanny will cost every month
Don’t aim for perfection — have some faith that you will sort things out
If you’re reading this, you’re probably going to be okay :)
The most costly years of parenting do pass quickly and hopefully more smoothly than you fear
MONEY
43% of women who feel bad about their financial situation end up also feeling bad about themselves
‘Potential loss of faith in idea of homeownership’ among 35 to 54-year-olds
Towie star Gemma Collins fronts a (TERRIBLE) parody pension awareness ad
UK scam and fraud compensation is cut from £415,000 to just £85,000 as financial institutions successfully lobbied for a reduction (bad news for consumers)
Petrol prices in the UK have fallen to their lowest levels in nearly three years, but fuel duty is expected to go up for the first time in14 years in next month’s autumn statement - adding 5p to the gallon
Asos is to start charging UK shoppers who frequently return large amounts of goods a fee of £3.95 to send items back unless they keep up to £40 worth of their order
The UK Home Office is to host a summit at which tech companies and phone manufacturers will be asked prevent stolen phones being traded illegally (and ending up in China, like mine did. Twice)
LIFE
PLEASE LET THIS HAPPEN Topshop could return to high street after Asos sells its stake
THIS IS SO GOOD The Tesla Files unveil more accounting fraud than imagined
MUST READ How dating apps contribute to the demographic crisis
DEAL OF THE WEEK
Buy one pizza, and get another for £1 at Pizza Express - until 26 September! I love Pizza Express so this is just about the most exciting thing 🍕🍕🍕
A few other takeaways from yesterday’s Money Brunch session:
Tapping into your intuition and listening to it is an important tool in your toolbox - alongside practical knowledge
For young children, open up a Junior Stocks and Shares ISA, for them to start building wealth (great for any birthday/holiday money gifts they receive)
Money Brunch sessions are consistently inspiring 💗
The next one is on Saturday 19 October at 11am. See you there?
Know someone who would enjoy reading this?
Honestly I hated this book, and resented paying £20.99(!!!) for it, which is why I’m not linking it here