July 6, 2017
This 100k might be some of the easiest money you ever make. But don’t worry, you won’t be doing anything evil like Mr Burns from The Simpsons.
It’s not hard to do either. In fact, it’s pretty easy.
This is one of the ways we’ve boosted our income over the years. This strategy bumped up our savings rate and helped us reach financial independence even sooner.
Lately, we’ve started discussing why savings rate is king for reaching financial independence. And I stated my strong preference for saving, instead of trying to earn more.
This doesn’t mean I’m against looking for ways to boost your income. Especially when those income boosts require little time and little resources.
For today’s income boosting idea, just a bit of flexibility and open-mindedness is all you need.
A few years ago now, we were cruising along on our way to financial independence and saving about 60% of our take-home pay.
Things were great. We thought we had optimised our expenses about as much as we could.
Then one day, something unexpected happened.
We had a family member who needed to move out of their rental because of a relationship breakdown. She couldn’t afford to rent by herself, so we said she could stay with us. She insisted on paying us rent for her room and to cover utilities etc.
We agreed on $150 a week. Less than renting a share house with someone new, and some pocket money for us. Of course this extra cash went straight into investments, not into new clothes and cafe visits!
This boosted our savings rate to around 65-70%. I nearly lost sleep from the excitement that caused 😉
So, over a year we receive $7800 in income. After extra costs we incur for gas, power and water, it comes to around $7200.
Not a bad little earner for a spare room. In our area, some people have charged twice this amount!
You can make a fair chunk of income with a spare room that may currently be full of junk, dead empty or barely used at all.
OK, you can. Stay with me. After a while I thought “hey, this is a pretty handy income stream,” and I came to a conclusion. Here’s how I think about it…
Earning this 7.2k from our spare room, is the same as us having an extra 120k in shares. Our Aussie Shares pay us around 6% in gross dividends. So, 120k of shares pays us 7.2k in dividends per year.
This is an extra income stream for us, so we should think of it as an asset. The true value of this income stream is 120k.
It’s up to you how you look at it.
Either we needed 120k less in investments to retire, because of the room rent situation, or we have 7k less in yearly expenses, since effectively our housing cost is reduced.
Essentially, it means the same thing… a higher savings rate. And we know what that means…. Yep, early retirement gets even earlier!
By changing our thinking, and being flexible, we became over 100k richer, instantly, with no real effort. Your room(s) might be worth even more than that.
Check out this cool room value calculator to see what yours is worth.
Now, I know not everyone has spare rooms they want to rent out. But the truth is, Aussies are sitting on a potential cashflow goldmine.
According to this article, most of us have at least one spare room. That’s a lot of wasted space.
Though we stumbled on this idea by accident, it’s a big industry now. People are cashing in and using their house as a hotel, with the likes of Airbnb.
There’s also the longer-stay focused accommodation Flatmates.com.au. I haven’t this platforms so I can’t comment on their safety or reliability. But I’d say Flatmates.com.au looks like a good option for a long-term room rent-out situation.
Obviously, it’s easier to rent out rooms to people you know, like family and friends. I still think it’s worth considering other people, if you don’t know anyone personally to rent your room to.
It wouldn’t take long to find someone suitable for most places, and you can pocket an instant income stream with an asset value of 100k plus!
Imagine if you have two spare rooms, or you live in a prime location, you could easily earn 10-20k per year.
That’s the same as having 170k-340k in dividend-paying Aussie Shares. Ultimately, you could be sitting on over a quarter of a million dollars worth of extra space!
Yes, I’ll loosen the lid on this can of worms just a tiny bit for now. Housing is relatively expensive in most cities of Australia. But some people don’t help themselves!
That’s why it’s good to be flexible with your living arrangements.
Housing is the single largest weekly expense for most people…. although my partner just told me she knows of someone with a $400 per week car payment. Yes $400 PER WEEK!!!
Anyway, for most normal people, housing is a major expense, so we should be open to ideas to reduce this cost. Especially if we ever plan on becoming financially independent.
I lived in a share house myself, from age 18-20 and it worked out pretty well. It was fun, low cost and social. It helped me save a solid chunk of my pay back then, without really trying.
For youngsters or singles who plan on getting rich enough to retire early, then renting a room or renting out rooms in their house, can give their savings rate a huge boost!
I definitely can’t claim any credit for optimising our housing situation, since it occurred by accident!
We’ve had this setup for a few years now, and it works just fine for everyone. Everyone has more company, but it’s not crowded. Our dog has someone extra to play with. And living expenses are lower for everyone, since housing costs and bills are spread across more people.
I understand it won’t work for every household. If you’ve got 3 kids and 7 cats, it’s unlikely to work for you 🙂
While you’re investing to build up that income stream, consider this option too. Being open to new ideas on how you live, earn and save, really pays off.
You might be able to retire earlier than you think!
What do you think of renting out rooms? Have you done it or would you consider it in the future? Let me know in the comments…
Note – Renting out part of your house is usually assessed as earning income, if it’s not a family arrangement. See tax considerations here. It is generally a simpler strategy for renters who are sharing. Bit trickier for homeowners, who can be up for some income/capital gains tax. It can definitely still be a profitable strategy though.