The Value of Investment Income: Part II of IV
If our first post on investment income inspired you to think of all the great things you could buy with some extra income, that’s great. If it inspired you to think of the things you could do that might increase your wealth while having a little bit of fun, you’re on the right path.
Next week we’ll look at some options for using income designed more 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 The Value of Investment Income Part I, but there are a lot of “outside the box” ways you might have fun with while still maintaining, diversifying, and possibly building your wealth. Some of these may be adding to existing assets, hobbies and other fun pursuits, or possibly building a collection of something valuable.
Previously, our example of models and action figures may have sounded like a stretch, but is it really? Collectors of items like these, as well as things like sports memorabilia, comics, and antiques would say No. Although collectible markets can be tricky and each requires the collector to do his research, find trusted sources and negotiate prices, they can be pretty lucrative hobbies. As with any investment I wouldn’t recommend sinking everything you own into a collection. But, for the wine enthusiast collecting classic Bordeaux, the car enthusiast building up a collection (or restorations) of hot rods, or the art-lover acquiring coveted paintings, enjoying the search and selection process of these fringe investments can make them doubly rewarding.
Maybe collectibles aren’t your thing. Maybe you like to create? Assuming the figures from Part I, what could you create with an extra $1,388/month. Maybe instead of buying art, you like to express your own artistic talents. Painting, designing, and building are activities that tend to provide stress relief and can produce things that bring more income or simply offset costs. Some people create art only for themselves, later to find that other people are willing to pay for it.
This author personally had a blast using some spare time to build a piece of furniture and later sold it for almost three times the cost, after two years of use. It won’t happen every time, but if nothing else you have created something that you enjoy or find useful, and something tangible.
Alternatively, you could put extra income towards increasing the value of assets you already own. The most obvious one that comes to mind is a first home. We’ll place this here, instead of the next segment on investing income, because for most people a residence is not an investment (we’ll look at those numbers another time). There are two main ways to increase your equity in a home. The first one, although it may be limited by prepayment clauses, is to make extra payments towards your principal. This will build equity in your home and reduce your interest costs over the long run. Another way to build equity in a home is simply to make improvements. You may not get back everything you put in, dollar for dollar, but if you make the right improvements you can increase your home’s resale value or possibly improve the utility you receive from it. For example, using extra income to finance an add-on can be a great alternative to searching for a larger home with a bigger mortgage.
If you are open to using part of your extra income for things that may pay off in more ways than one, using non-traditional investments, some of these ideas may be for you. This certainly isn’t an exhaustive list, but get creative, do the numbers (get someone to help you review them if you need it) and get started. If you’re thinking more along the lines of using extra income for a business venture or an investment, tune in to Part III in two weeks.