There’s Only One Guarantee When it Comes to Money
There’s a lot that can be debated about money. How much to save, where to put it, how to spend it, the impact of inflation…the list goes on. However, there is only one guarantee when it comes to money:
Nothing x Anything = Nothing
Here, let me put it in visual form.
So the reality is that if you never save a dime, you’re in dangerous territory now and guaranteeing problems later in life.
You’ll have to work ’till you drop—but what if you become unable to work? If you’re comfortable scratching out a living, well maybe you can survive on the hope of Social Security. I don’t mean to sound all doom and gloom, but the reality is stark.
Okay, now that I’ve tossed the bucket of cold water, it’s time to get inspired. Any passive income is good income. You work hard and if you don’t spend every last cent, you can invest your dollars to hard work for you.
These are the best employees to have; you don’t have to pay for their benefits, they can’t sue you or go out on disability leave. You don’t have to micro manage them and you’re free to go off on vacation!
The four tables below show what your annual passive income would look like with savings of $100k, $250k, $500k and $1m earning various interest rates. Of course, the constant is a savings rate of zero will always return zero income (that’s a nudge to the coffee can and mattress savers!).
What Will It Take?
These numbers are pretty much meaningless unless you have an idea of what you think you’ll need to live on when you stop working for an earned income. Call that retirement, leaving the rat race, or just taking a few years off. The idea is to pick a number that you can work from. I gave a lot of detail about how to do that in my post titled Setting 10-year Plan Goals.
If you want to start simple, just pick a number based on your current income. As an example, let’s say you think you can live on $25,000. To get that amount you’ll need $250,000 earning 10% or $500,000 earning 5% or $1m earning 2.5%.
It’s not impossible to achieve these return rates. I’m not a financial adviser, but here’s what I do. I look at the “average annual return since inception” on older mutual funds and find mid-risk choices that can get these returns. I prefer funds with a long proven track record, but that doesn’t guarantee anything.
Most important is that you choose something you feel comfortable with and you understand what you’re buying.
How much to save can be a complex subject. But the good news is that there are lots of variables and you can tweak your plan over time. The most important point is that to earn passive income, you have to have capital to put to work. If you aren’t building your staff of “hard earning dollars” today, make a commitment to yourself to start now. Your future self will thank you!
What Can You Add to the Conversation?
Do you have a plan to generate passive income? How much do you think you’ll need earning what interest rate? I’d love to hear from you! Please share your thoughts in the Comments below.
- Saver Vs Spender — Which One Are You?
- Reduce Financial Emergencies With One Simple Strategy
- Part I: Why You Should Have a 10-year Plan
- Part II: Setting 10-year Plan Goals
- Part III: Charting Your 10-year Plan Progress