In my previous two posts (part one and two) I introduced the F(orget) U fund, and said it wasn’t enough — you need an income stream.

The income stream will help in two ways: If you lose the job, it will help meet your needs, but while you keep the job, it will help you build the fund.

Today, two things:  How to build the fund, and how to generate an income stream.

The Fund: I get it, you’re broke

You’ve probably heard “save, save, save” from practically everyone for your entire adult life, and, likely, a fair bit of your childhood.  Save for retirement, save for college, save for that house … now this blogger wants you to save for a rainy day, too.  Great.

It’s easy to say that, but harder to figure out if you should do it.

I’m not suggesting that you add up all your credit card bills, put them in categories, put cash in an envelope for each catalog and go to an all-cash system – but it has been done.  Nor am I suggesting a simple household budget, although they help.  Instead I am suggesting two things:

One: Give yourself a weekly allowance for non-essentials. Clothes, Fast Food, Dry Cleaning, Cola, Candy Bars, whatever.  Check that numbers against you outgoing cash and make it less than your regular “Walking around money.”  This is the money you take out of the ATM that just sort of disappears.  Put it in cash, in your wallet, and, when it’s gone, it’s gone for the week.  You’ll have to wait until Monday for that Snickers.  (You can also compare credit-card bills to figure what this number should be.  You may want to track bigger-ticket purchases second.)

Two: Some amount of the difference between your allowance, and what you were spending before, goes into saving.

Three: Pursue tradeoffs you can make to live below your means. like getting books from inter-library loan instead of buying them, or getting your DVDs from the library.

For every trade-off you make, stick the difference in the bank.

I won’t make you rich, but it may slowly put you in a better place.

The Revenue Steam

After three blog posts, if you expect me to try to sell you a product to make money fast, well, I wouldn’t blame you.  The world is full of them.

I am not going to do that.  There is no product pitch here.

Actually, I might go even further:  When people talk about ‘true’ passive income while you lounge on a beach, beware.  I’ve done a book; it is a lot of work.  And while, yes, people could, in theory, buy the book while I am lounging on a beach in the carribean, it is more likely that they will not unless I market the book … and that is work.

One thing you can do is to trade your time for money.  This can be anything; I once knew a programmer who made more money per hour delivering pizzas than he did as a programmer. (Apparently, tips can be very big for pizza drivers on weekend evenings.)

Don’t want to leave your house? Amazon’s Mechanical Turk software allows you to perform menial tasks that require a human for modest payment; if you know what you are doing, you might make $4/hour.

No, that’s no much money, but you can do it from anywhere you want, any time you want, with no application fee.  Go ahead and experiment.  If you want more money, check out uTest, which does crowd-sourced software testing, or RentaCoder if you have the skills, or your local craigslist.  Anyone with a semester of calculas can probably tutor most high-school courses, and you can get business cards for just shipping and handling over at VistaPrint.com.

I’m telling you this because I believe in it.  I built a small, part-time technical practice, and, in May 2011, I went independent.  It seems to be going okay

Nothing to buy here, folks.  No get-rich-quick scheme.  No reverse funnel multi-marketing schemes, though they can be entertaining.

The Bottom Line

If you spend less than you make, and you put some in the bank, over time, you can get confidence and economic freedom.

And, in a world where the that’s quickly going crazy trying to to get someone else to do the work yet keep the profits … it’s kind of a big deal.

When I introduced the Eff U Fund, I suggested that the very idea was challenged.  Once you’ve saved up the three-to-six months of savings, should you tell the boss to, well, Forget himself and walk out, that money will run out very quickly.  I suggested the reader needs a revenue stream, not a pile of cash.

I’m not the first person to have this idea; why, George Costanza realizes it in an early episode of Seinfeld.

That’s right.  George goes right into the boss’s office and quits (video!).  It is a moment of pure pleasure.

Then he has to figure out what to do next.  George’s Friend, Jerry, asks if he’ll look for a job in real estate, to which George replies “huh.  Nobodies hiring now, the market’s terrible.” (More video!)

As you can guess, things do not improve from there.

Now in Seinfeld, you can always go back to your job and pretend that the whole quitting thing was a joke. In real life, not so much.

But that’s the thing about the Eff U Fund – it’s not really supposed to allow you to be George Costanza, to directly quit your job on a moments notice.  No, instead that money in the bank is supposed to give you emotional security – so that you can say no when someone else makes an unreasonable demand on you.  As one of my readers once put it:

I think it isn’t just about actually quitting, its about knowing you have something to fall back on, that you don’t have large outgoings so when the boss asks you to do something unpleasant you have the confidence to just say no.

For example, a few years ago I had a colleague who worked in a reporting and analysis department.  One of the executives had a habit of dropping by his office at 4PM on Friday and handing him some extra work, with the comment “This needs to be done on my desk Monday morning.”

My friend, who I’ll call Bob, felt terrible about this.  He would cancel lunch appointments, kayaking trips, family events, all to get these reports done.

Now I have to wonder:

* If these reports really need to be done by 8AM Monday, how risky is it to pass them off on a mid-level technical person at 5PM Friday?

* If these reports really need to be done by 8AM Monday, how much notice did Mr. ImpressiveTitle have?  I mean, how often is it that these reports need a one business hour turn-around?

It’s likely that the reports don’t need to be done, or multiple other people shirked there duties, and Bob had to play clean-up crew.  By canceling everything to play clean-up crew, Bob is teaching people that this is acceptable behavior.

For about six months I asked Bob this question: “What happens if you say no?  I mean, are they going to fire you?  Really?  I mean, when the facts come out into the public record, wouldn’t Mr. ImpressiveTitle look worse than you?”

And, eventually, it did.

The Final Straw

Bob was planning to leave Friday afternoon for a family wedding in a different state, returning Sunday night at 11PM.  The big boss came down Friday at 4PM to drop off the work, and Bob said “I’m sorry, I have plans.”

And that was it.

Oh, I don’t know.  Perhaps Mr. ImpressiveTitle found some other poor schmoe to do the work.  But I do know that, for Bob, the Crazyiness was mostly over.

Why did it take Bob so long to say “no?”

Because he was afraid for his job.

One Major Benefit

If you are living pay check to pay check, “What’s the worst that could happen?” (when you say ‘No’), well … that could be pretty scary.  This makes you susceptible to all sorts of demands, blackmail, and unreasonable treatment.

Having the fund puts you in a position to not take work that you find unacceptable.  To “just” go home at 6PM each night.  To be dedicated, but not so dedicated that you end up doing shoddy work on not enough sleep.

You might not quit in this case, but if worst turns to worse and you are let go, you’ll have have a stream of unemployment insurance plus the Eff U fund to fall back on.  That might last you a long, long time; long enough to get the right job, not just any job, or relocate, or change your life position.

And that is a real good thing.

Better still is a revenue stream that will last.

Still to come – How to build your fund, and how to generate revenue.