It happened to me. I am extremely grateful I still have my home. After losing two jobs during the dot com bust and 9/11, I found myself unemployed and unable to pay my mortgage, not to mention any of my other bills. I was alone and afraid. I didn’t know whom to turn to and I didn’t have a lot of money to pay an attorney or seek other help. I sincerely hope that you don’t find yourself in this situation, but if you do, immediately take the steps that I took so you can also avoid losing your precious home. This list is in order of importance.

1. Contact Your Mortgage Company
Call your mortgage company immediately, even if you are technically not yet behind on your payments.Your lender is not in the business of taking homes; believe me, they make far more money lending your mortgage payment to other homeowners. Your lenders may work out a payment plan that will help you until you get back on your feet. There are many different plans they may offer you — a temporary grace period, a temporary reduction of payments, or, if you have already missed payments, stretching those missed payments for a period of time.

If you are already in foreclosure, you can still work with your mortgage company! I did. I worked out a “forbearance agreement”. I had to pay my regular mortgage payment plus a portion of the missed payments every month. I also had to agree to send the funds certified or else they would have taken my home.

2. Speak To An Attorney
Attorneys are expensive. I wouldn’t advise paying one at first. Try to find an attorney that will give you a free consultation, or consult Legal Aid. The money that you do have should be earmarked to pay your mortgage. That being said, if you cannot find free or cheap advice, I would then spend the money for an attorney. I was lucky. I asked around and I spoke to a friend of a friend for free. You don’t need an attorney until you have to go to court — then, please hire one!

3. Reduce Your Other Expenses
I immediately cut off my cable, reduced my cell phone plan minutes (I still needed mine for job searching), and made other cuts to my spending until I got back on my feet. For me, that also meant temporarily changing my dietary habits and purchasing cheaper food. I traveled less so I spent a lot less on gas and train fare. If you can, cancel your registration and insurance on your car so you can save those payments. Little changes go a VERY long way. Remember, it’s only temporary.

4. Rent Your Rooms
I had three extra rooms in my house and immediately furnished and rented all of the them. This single step helped me save my home. I checked with my town to verify it was legal for me to do so. I used VERY little money to get this going. Once I was started receiving rent from my tenants, I was able to give more to the mortgage company. The benefit of this is that you will get money without working and you can deduct your expenses as a business!

5. Have A Yard Sale
Sell some of your things. I’m not talking about the family heirlooms here; I’m talking about extra pieces of furniture, used books, clothing, CDs, movies, etc. You’d be surprised how much money you can raise!

6. Spend Full Time Hours Looking For A Full Time Job
I have to tell you, for me this step was very hard. I did not want to look for another job, but I had to in order to save my home. For some, this step may take longer than others — your mileage may vary. Looking for a job is numbers game - network, post your resume on the job boards, look in the classifieds. It may seem like it will take forever, but you will find something. I promise.

7. If Feasible, Work Part Time
Unemployment checks did not pay my bills in the slightest. In addition, receiving rent for your rooms and collecting unemployment may be prohibited under law. Check with your local unemployment office. In the meantime, find a part time job — even if you are making only minimum wage — and get some cash in your pocket. This will probably get you more than unemployment will give you anyway! Some part-time jobs have limited benefits as well. Plus, getting out of the house is a big energy booster. Having your home in jeopardy is very stressful and depressing. You NEED to get out of the house!

For some of you, health problems may prevent you from working, or you may have suffered some other unfortunate event that may not allow you to do all the steps above. At the very minimum, contact your mortgage company and try to rent your rooms. If you can find a temporary place to live, you may want to consider renting your house in full. You may find a smaller or cheaper apartment or you may be able to stay with family and friends.

If all else fails, you may be faced with the choice of selling your home. Before you call a real estate agent or speak with an investor, call around and check the references of any agents or investors you consider. Not all investors are out to steal your equity or your home; many can make incredible deals with you that may even allow you to still live in your home and purchase it back, if push comes to shove. You may in fact be able to sell your home to an investor and save costly realtor fees. Be careful! Never make any decisions on the spot. Now would be a good time to pay for an attorney’s advice.

I made an agreement with my mortgage company and rented out my rooms. I found a job, and then kept my tenants to help “catch me up” on my other bills. Then, I just enjoyed the passive income that allowed me to pursue my other dreams. Unfortunately, to get to this point, I did spend money on services that didn’t do anything I couldn’t do myself — and, in fact, they ended up not helping me at all. There are plenty of free resources and articles that you can read to help you make the right decision. Good luck. You will be fine.

The fact is, if you want to become financially free, you must do two things: increase your passive income and decrease your expenses. Once your passive income is equal to or greater than your expenses, you are financially free. The concept is simple enough — and in other articles I address creating passive income (the easiest and fastest way to do this would be by renting your rooms). But how do you simplify your expenses? Especially when you look around and you don’t see a way HOW? Here are a variety of ways you can still live a decent life and be a bit more frugal at the same time.

Food & Toiletries

• By far, making lunch at home was one of my biggest savings! I made lunch and snacks and bought them to work.
• Instead of buying shower gel, go back to soap bars. They last longer and are much cheaper.
• Don’t wash your hair every day, and when you do wash your hair, only wash it once. That saves lots of shampoo.
• I made my own coffee at home — or cut it out altogether and put that money aside in your financial freedom jar. One guru calls that the “latte factor.”
• As a nation, we eat out a whole lot more and buy convenience foods to just heat in the microwave — but these can be expensive. Cooking may take time, but it does save you lots of money.
• Buy generic! I was so opposed to this, and one day I ate some potato chips that my boyfriend bought. Seriously? They didn’t taste different from the name brand. Try it. Ok, some things may be non-negotiable, but you’d be surprised what is. Your grocery bill will go way down.
• Take the effort to cut coupons, take advantage of sales, and go to discount warehouses, like Sam’s Club or Costco.

Heat & Electricity

• If you don’t already have one, get an electric thermostat with a timer, so you can change the temperature automatically during specific times of the day. Lower the temperature when the family is out of the house.
• Use space heaters and lower the heat in the rooms you use. Use an electric blanket at night.
• There is plastic covering you can get at the hardware store and cover your windows. That keeps the heat in the house.
• Make sure your boiler and hot water heater are maintained properly.
• Wear layers of clothing and keep the heat lower.
• Use kitchen and bathroom vents sparingly in the winter
• Replace regular light bulbs with compact fluorescents
• Wash laundry in cold or warm instead of hot
• Use a clothesline instead of using the dryer
• Use a ceiling fan instead of an air conditioner.

Cell Phones, Internet, and Communication Utilities

• Avoid pre-paid cell phones, even if you just want the phone for emergencies, unless you are careful to use a plan with minutes that don’t expire. You pay exorbitant rates per minute.
• Never underestimate the minutes your teen may use. Be careful not to get the lowest plan. Constant overages are very expensive overall.
• You don’t necessarily need a home phone if you have a cell phone. With free nights, weekends and long distance, you may save considerably. Be careful with phone plans that have low rates, because the taxes add significantly to the bill.
• For your Internet connection, you don’t have to get the highest rate of connection speed. For the average user, you won’t be able to tell the difference and that can save you $20 a month.
• If you switch to broadband, don’t keep your dialup (unless you travel often outside the country or in rural areas). Also, drop paying for AOL. All AOL features are free if you have broadband.

Entertainment

If you really wanted to be extreme about it, you could cut entertainment out altogether. But that’s not really practical, so here are some ideas.

• First, if you think FREE, you may not get free, but you do end up with “cheap.” Cheap doesn’t mean less fun, either. Sometimes you can have MORE fun.
• If you live in a city, just try walking around. In New York, I have found impromptu concerts by street musicians or just sat in the park and people watched. You’d be amazed how much fun you can have!
• Instead of eating out or going to bars with friends, host a potluck at home or just have friends over for drinks. It’s much cheaper to buy liquor than to buy drinks at the bar.
• For movies, go to matinees or the $2 movie (some communities have them). Yes, those movies are second-run, but hey, it’s worth financial freedom to me. You can also always rent movies.
• Cable. When times are tough, the cable needs to get going. It can get so expensive! If you do need it for the reception, get basic and then rent movies. Buying a great DVD player and renting movies is cheaper than cable in the long run. If you rent rooms in your home like I do, keep the cable — it’s a perk for your tenants that are worth paying for.
• Take your kids to the bookstore and hang out.
• Find free community shows, like Shakespeare in the park or fireworks.
• Take the kids on the subway trip — as far as you can and go explore. In New York, take the train to Coney Island.
• In the summer, there is always a local food festival or street fair.
• Get your kids involved in a community group, like a theatre. They develop skills, make friends and have fun.

Clothing

• For kids, don’t go over the top with the brand names, especially since the kids will grow out of them quickly.
• For adults and older teens, don’t buy really trendy clothes that will only last one season. Buy classical fashionable clothing that will last, and get trendy with accessories.
• Buy shirts and ties or blouses and just one suit — accessorizing is cheaper.
• Buy a few pieces of quality clothing as opposed to lots of cheap clothing. They will last a lot longer.
• This goes without saying, but buy clothing in the off-season and on sale. You will save a tone of money.

Transportation

• A gas saving tip I just learned: put your car in cruise control whenever you can. It has cut my gas bill in HALF.
• If you live in a metropolitan area, try walking around the city as opposed to taking a bus or a train. In New York, you can even get there faster sometimes!
• Maintain your car — tire pressure, oil changes, everything. Preventative maintenance is way cheaper than repairs.
• Never use cheap gas - use quality gas and the correct octane for your car. It may seem more expensive, but it’s cheaper in car repairs in the long run.
• Don’t be afraid to walk, even in the winter. It’s great exercise and it saves a ton of money. Bring a backpack with you for grocery shopping if you need only a couple of things.

The Change Jar

I have a change jar. Every time I pay for something, I always use bills and get the change. I put the change in the jar. You wouldn’t believe how much money you can save! This money could be entertainment money, allowance for the kids, put it in a savings account or saved for emergencies. This change jar has saved my butt many times over the years, and is a great way to have “found” money at the end of the month.

To Your Victory,

A. Annika Smith

Annika Smith is dedicated to teaching others how to be not only financially free, but also wealthy and happy. Want to be rich? It’s easier than you think. Follow the exact path Annika took to massively improve her life by checking free information at http://clues.rentrooms4cash.com.

Copyright © 2006. All Rights Reserved.
You are free to distribute to anyone you wish as long as it is forwarded in its entirety and nothing is changed.

Financial freedom simply means that your passive income exceeds your expenses, and you don’t have to work for a living — you can actually live for a change. Passive income is money that you receive without working for it (for a primer on passive income, see my other article “The Truth About Passive Income” on my website http://cluestocash.rentrooms4cash.info). Technically speaking, people who collect a pension, income from a 401K (or other retirement account), and social security are financially free.

Here’s the thing. Just because you achieve financial freedom does not mean you are rich! All that means is that you don’t have to work to maintain your standard of living. But that’s a good thing! Most of you reading this are probably not millionaires — yet. It won’t take you as long as you think to become financially free! Remember, that just because you are financially free doesn’t mean you are obligated to quit your job, either. It means that now, you have CHOICE. You can choose to not work or work doing something that truly makes you happy, with no thought of the salary amount. It also means that you can take your newly found free time and start making MORE passive income. In addition, with the combination of education, time, and creativity, your limits will know no bounds! You can become massively rich and happy. You will be able to change the lives of your family and others around you.

There are many ways to get passive income. Interest from savings or CDs won’t get you a lot of income unless you have invested a lot of money — and you won’t get a great return. Stocks and bonds can not only rise in value, but also give you dividends, and the right choices will bring you plenty of passive income. Businesses that are systemized — that is, they run without your constant management — can bring you a lot of passive income but also require strategy, skills (which you can learn) and time.

Real estate is an excellent choice as well, and my favorite. Many people think that investing in real estate takes a lot of time, money and risk. That’s partly true — real estate, in the beginning, will take time. Realistically, you will have to spend some money (even if it’s only a little) and every investment is a risk, not just real estate.

Here’s a quick, easy, cheap, and painless solution — have a spare room in your house or apartment? Renting out a room in your home will immediately give you passive income that you can save and use to develop your business, invest in a stock portfolio, or buy that rental property.

I started renting rooms in my house after I had been laid off. I used very little money and I painted and fully furnished three bedrooms. I got some great roommates and collected money every month. After I found a job, I saved the rental income and I used it to start my businesses and invest in a stock portfolio.

Renting out rooms is easy to do. When you start, you are actually starting your own business! You can now deduct expenses off of your taxes you couldn’t before having your business. You can then take that money and start working on those other streams of income.

I know that some of you may cringe at the thought of sharing your home. And yes, you do make some sacrifices. However, in my experience, my tenants were rarely home, didn’t really use the kitchen, and paid the rent.

How much you can charge for rent varies greatly, depending on your area. Some neighborhoods, like Westchester, New York have rooms for rent for over $700 per month! Think about it — that’s just one room, how much can you get if you rent out more than one room?

Let’s get back to financial freedom. Renting out rooms in your house will bring you passive income. Chances are, though, it won’t make you financially free. That’s ok! It’s the key to the doorway — to getting other sources of passive income that will make you financially free.

So, rent out your rooms. Take that money and invest in your education. Learn about stocks, real estate, and starting your own business. Invest and start earning multiple streams of passive income. Become financially free. Earn more passive income. Become rich. Improve the lives of you and your family. Help others.

It’s easy. It really is. Keep reading my articles, I promise to help.

Webster’s dictionary defines passive income as “of, relating to, or being business activity in which the investor does not have immediate control over income”. I don’t think that tells the whole story. Passive income is money that you receive over and over again without having to do much work (notice I didn’t say “any work”). It is different than earned income in that you are not receiving money for your time (like you would a job). But depending on the passive income stream that you choose, you may in fact have immediate control over your income. But I’ll get to that later.

Why would you want passive income? Well, like Robert Kiyosaki explains in his book Rich Dad Poor Dad, that is the main difference between the rich and the middle class. The rich invest their money in various passive income streams. When their passive income exceeds their expenses, then they are financially free. “Financially free” simply means that you do not have to have a day job to pay your expenses. And you are “free” to then do whatever you want!

What Passive Income Isn’t

Before I go into telling you what passive income is, let me first tell you want it isn’t. Passive income is not the same thing as “residual income”. Residual income is money that you receive on a regular basis after having done work once. The best example would be TV sitcoms. Some actors get “residuals”. Actors get paid for filming the show. Afterwards, some actors get paid each time the show repeats. Sales people that sell services, subscriptions, or renewable products (like insurance) sell that item once and, providing the customer renews, will get a commission off of each renewal. Royalties from the sale of books and music are also residual.

Many say that multi-level-marketing or network marketing sales provide you with passive income. Guess what? That’s residual too.

If you have a small business or are self-employed, even if you are making a lot of money, this is NOT passive income. If you receive a salary from your business, that is earned income. There is a way to turn this into passive income, however – so stay tuned.

You know, I have to say that starting your own website cannot be passive income. Whether you are selling a product (such as an eBook, seminar or other information) or a service, you still have to market your website. You will have to do this regardless of whether you are selling your OWN products or have the rights to sell other’s products. Marketing your website is work, simple as that. But it’s not a job. And once your marketing efforts start taking off, you can make a lot of money with little additional effort. But that is residual in my book, not passive.

What Passive Income IS

Passive income is a lot of things. The first thing that comes to mind, and also, I believe, the most popular example is real estate. If you own investment property and are getting a positive cash flow from a house, commercial property, or apartment, that is passive income. If you rent rooms in your house, that’s passive income too. You only have to set this up once, and then the income comes in month after month. Interest income from savings accounts, CDs, and money-market accounts are passive – the bank pays you for keeping your money in those accounts. If you have a website with banner ads or Google Adsense ads, that can be called passive as well.

If you invest in any business, but don’t manage it, your profits are considered passive income, exactly what Webster was thinking about when he wrote the definition.

What about business? Well, that depends on how you set it up. Rich people create businesses and set up a system that the business follows. That way, if the owner goes on vacation for a month to Fiji, the employees follow the system and the owner still gets the profits. Any business will of course start out with a lot of work, but if you take the time to set up a business so that it gets reproducible results (exactly like a franchise), those profits become passive. And, according to the IRS, any salary you get from your business is considered “earned” but profits are considered “passive”. It is vital when starting a business to check with an accountant and an attorney to set up your business that financially benefits you the best.

What else can be considered passive income? How about self-storage facilities, parking garages/lots and dry cleaners! They all require some time to start up, but once they are set up, you collect money over and over again.

Residual versus Passive Income

Residual and passive income are like siblings. They are both very similar and most people really consider them synonyms. What does it matter, anyway? They are both excellent ways to get money in your hands month after month after month without trading your time or your freedom. How can it get better than that?

Reality Check

Beware of anyone that tells you that there is NO work involved in passive income. Passive income does not mean no work! If you are going to invest in a business, a stock, or a real estate property, you will have to do your research (this is called “due diligence”). Research is work! You will also be required to manage your investments, to check up on their progress and make changes as necessary. That’s work too!

The good news is that research and management is only a part-time endeavor. And most of the time, that work can be done from almost anywhere, including on a beach in Fiji.

Let us not forget the FUN factor. I’m sure there are some of you reading this who like, even love their jobs (if you still have one). Some of you have your own business – and congrats to you! But most of us are in jobs just because we need to feed our families and pay the bills. Looking into passive income streams and investing your time and money can bring you many, many returns. Researching for and implementing your passive income plans so that you can live your dreams is FUN. Getting money every month, week, or even every day is FUN. And trying out new strategies and managing your money – when you have some to manage – is FUN.

I hope I’ve done my job and given you the passive income basics. If you have any questions or thoughts, feel free to contact me through my website. I’d love to hear from you!