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How To Make More Money Without Working More

January 10, 2019 2:23 p.m.

GUEST: Paul Lim, financial planner, The Wealth Consulting Group and adviser, San Diego Financial Literacy Center

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This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.

Typically if you want to bring more money in you have to work longer hours. But wouldn't it be great to not have to work more to create more income. That's the idea behind something called passive income. We're continuing our series on personal finance by speaking with financial planner Paul Lim about ways to create passive income. Paul is also an adviser with the San Diego Financial Literacy Center. Paul thanks for being here. Thank you. It's great to be here. OK first to make sure we're all on the same page what exactly is passive income.

Well just like you said passive income is really breaking out of the mindset where you have to trade hours for dollars and the only way to make more money is to sacrifice more of your time and leisure. So there are ways that you can actually create systems and actually own like a miniature business so that you can actually recapture some of that time earn more money without having to put in a proportionate increase in the amount of hours that you spend doing it.

And can you give us some examples of passive income.

Sure. I think most people would be familiar with some of the older ways of earning passive income which would be like renting out a piece of property or owning a piece of stock for example so if I buy a share of Apple I get this little piece of paper and then when all the Apple employees go to work in their office they're working to make my little piece of paper more valuable over time so that I can sell it in my retirement and and make ends meet. But if you think about it and you do that calculation you say OK I've made this many additional dollars and I spent zero hours making that appreciation happen.

That's like infinit dollars per hour because I didn't have to spend any of my own time to manifest those dollars. There are actually now these days many new avenues to actually earn passive income. And this has come about because of such huge advances in technology. And so you now see these people who are able to do reviews on some little products that they like. I saw a video the other day where some girl just talks about different types of candy that she likes. She has millions of views and then you were able to monetize your channel earned dollars that way.

Some people will start off just by writing a very simple blog about something that they enjoy. They'll sell an E-book. Totally bypassed the publisher. Just make a PTF available charge five dollars and then distribute it to them electronically.

And one way to make money from say the blogs and youtube videos you mentioned is through affiliate marketing. How does that work.

Affiliate marketing is very interesting what you can do is you can actually become like a virtual salesperson. And what that entails is basically signing up to sell some company's products and it can be as simple as linking to something that's sold on you can sign up for their program and sell anything that's shown on and you can write a website about it or you can do a video about let's say I find some digital camera that I really like and I put together some video and I explained to you all the features and benefits and provide a link to where the people who watch my video can purchase that same product.

Amazon will actually send you a little commission for connecting them to the customer. And in doing so you're actually in essence working for that company on a virtual basis without having to go out and see each one of those people by driving door to door or something similar.

And let's talk about one of the old ways of creating passive income that could seem daunting for some and that's investing how much money should you have to start investing.

You know when we talk about how much to begin starting I think the best way to actually begin to develop an investment portfolio is to do it through cash flow. It's not coming into a lump sum of money. It's again making sure that you're taking care of the fundamentals which is spending less than what you earn and creating a monthly surplus. The best way to do it is through cash flow and that can be as simple as starting a Roth IRA with a hundred dollars a month. It's something that's achievable for most people.

And as we've mentioned before if you set those deductions to occur automatically you don't have to remind yourself to make that crucial financial step every single month. So you automate the good behavior and you make it so that you fund those accounts with cash flow if you do a hundred dollars a month for a year that's twelve hundred dollars. That's enough to buy several shares of some what are called exchange traded funds or mutual funds and that's an easy way to begin.

And do you have any suggestions on how to come up with that first one thousand dollars outside of socking away the surplus.

Sure. You know this is coming right around tax season right now. And so there were some new laws that went into effect last year. I'd be willing to bet that a lot of people are going to get refunds that maybe they wouldn't expect. And instead of spending those dollars consuming them you can actually put them to work for you. And so that you're not always working for your money. You can get your money working for you. To create new money out of that process. And so maybe some of these refunds that are going to be coming up are a great way to begin to have a large lump sum with which to start.

OK and once individuals have that lump sum of one thousand dollars or more what specifically do you recommend they invest in.

We always talk about the importance of owning a diversified portfolio which means you own a little bit of everything you own large stocks you own small stocks you own these kinds of bonds you own those kinds of bonds you own international stocks by spreading out your money in many different parts of the world. You're able to capture the upside when it happens but also outperform on the downside. So in other words if something out there is crashing you don't have all your money in that part of the world. You're able to mitigate the risk that occurs in that particular part of the economy.

And what's your thought on stocks. I mean do you recommend investing in them or now.

You know we always talk about how you can reframe the perception of stocks. Many people think that it's like gambling but it's really not. If I buy some index for example the S&P 500 it measures the 500 biggest companies in the United States. And so if I start buying that and I say to myself I think the 500 biggest companies in the United States are going to be worth more when I retire than they are right now. That's really not that aggressive bet. Think about all the employees that go to work for those 500 companies every single day seeking to make it better.

And if you give them 20 30 40 years do you think those companies are going to be worth more at the end. It's not really an aggressive bet is it. And so by spreading your dollars out in that fashion and owning a lot of those major indices you're able to make it so that you don't utilize stocks like an aggressive bet. It's not a gamble it's simply an investment in those large companies and you're in essence putting those employees to work for you because they're all trying to make those little pieces of paper that you own worth more in value.

All right. I've been speaking with financial planner Paul Lamb. Paul thank you so much for your advice. Thank you.