Creating genuine passive income is the holy grail of personal finance. Not all passive income is created equal mind you. Some streams take much more initial effort to start, such as saving enough to buy your first rental property. But once you start it’s very difficult not to gain momentum.
Everything passive first takes active energy. The time to put in the effort is when we are young and not ravaged by disease or burdened by family obligations.
I remember being able to snowboard from 9am until 4pm every day for a year. Now, I’m lucky to last from 11am until 2pm without wanting to go to the hot tub and drink a bucket full of beer!
If we can appreciate how lucky we are when we are young, we’ll be able to maximize our vitality and live financially freer when we are older.
With sustainable passive income you can do the following:
* Retire early and travel the world.
* Start a business in a field you are passionate about.
* Find a job that pays less, but is more interesting.
* Stay at home to take care of your family without having to worry about money.
* Volunteer for causes you truly care about.
* Be a big brother or big sister.
* Spend more time with your parents.
* Sit in a coffee shop on a 80 degree day in Paris for hours on a Wednesday afternoon.
* Write the next great novel on the balcony of a cruise in the Mediterranean.
* Eat tapas and drink sangria until 1am on a Monday evening.
* Potentially live longer due to much less stress.
* Experience perfect endless summers over and over again.
There is so much you can do once you generate enough passive income to pay for all your living expenses. I highly encourage everyone to at least try. This post will provide you the framework for passive income success.
The Passive Income Framework
1) Save Like Nobody Owes You Anything. Passive income starts with savings. Without a healthy amount of savings, nothing works. Your overall “Money Strength” will be an F- if you do not build a financial nut. In our current low interest rate environment, you must save even more than before. It’s important to also realize that the savings I am referring to is after-tax savings.
You need to save money after contributing to your 401k and IRAs since you can’t touch pre-tax retirement accounts without a penalty until 59.5. Ideally everyone should max out their pre-tax retirement funds first, but if you don’t have enough funds and want to retire earlier then a decision to have more accessible post tax money will still work.
What I did: Saved 50-75% of my after tax, after 401K contribution every year for 13 years because I knew I could not last in finance for more than 20 years. Now I am saving 100% of my passive income as I try and bootstrap my online businesses.
2) Find Out What You Are Good At. Everybody is good at something, be it investing, playing an instrument, playing a sport, communications, writing, art, dance and so forth. You should also list several things that interest you most.
If you can combine your interest plus expertise, you should be able to monetize your skills. A tennis player can teach tennis for $65 an hour. A writer can pen her first novel. A finance buff can invest in stocks. A singer can record his first song. The more interests and skills you have, the higher chance you can create something that can provide passive income down the road.
What I’m doing: I love to write and invest. Combine these two interests with my ability to get things done equates to multiple investment types and this personal finance site that generates revenue.
3) Create A Plan. Mark Spitz once said, “If you fail to prepare, you’re prepared to fail.” You must create a system where you are saving X amount of money every month, investing Y amount every month, and working on Z project until completion. Things will be slow going at first, but once you save a little bit of money you will start to build momentum. Eventually you will find synergies between your work, your hobbies, and your skills which will translate into viable income streams.
What I’m doing: I use this site to write out goals like 1) Generating $200,000 a year working 4 hours a day or less, 2) Trying to make winning investments, and 3) Keeping track of my passive income streams with free financial tools. My site and the community helps keep me accountable for progress. It’s important I do what I say, otherwise, what the hell is the point? You should consider starting a site or at least a private journal. Write out your specific goals, tell several close friends and stick to the plan.
4) Treat Passive Income Like A Game. The only real way to begin your multiple passive income journey is when you are making active income. The initial funding has to come from somewhere. Hence, treat passive income as a game that has various levels. If you fail to achieve one level, it’s not the end of the world since you still have active income and can restart.
Further, a game is meant to be played with integrity. Using shortcuts (non passive income streams), someone else’s income as a supplement (spouse), or one-offs (capital gains) does not count. The primary purpose of any game is to bring enjoyment to the player and beat the boss.
What I’m doing: I view passive income as funny money to keep myself sane during this long journey. The dollars created are just points one can accumulate. I’ve made passive income goals for each passive income type and check in at least once a year like I am now to make sure I’m on track. Passive income is also carefully managed to minimize tax liability. When you can build a buffer for a buffer, you are then free to take more risks.
5) Determine What Income Level Will Make You Happy. Think back to when you made little to no income as a student. Now think back to the days when you just got started in your career. Were you happy then? Now go over every single year you got a raise or made more money doing something else. How did your happiness change at all, if any? Everybody has a different level of income that will bring maximum happiness due to different desires, needs, and living arrangements. It’s up to you to find out your optimum income level.
What I did: I first identified my favorite places in the world to live: San Francisco, Honolulu, Paris, Amsterdam, New York City, and Lake Tahoe. I then looked up the median rent and housing prices for each city. Then I factored in private education costs for two kids to be conservative given I may not have two kids and public schools are often good enough.
After calculating all vital costs, I then did a self-assessment of how happy I was making $50,000, $100,000, $150,000, $200,000, $250,000, $350,000, $500,000, and $750,000. I decided working 20 hours a week making $300,000 a year is the best income balance for maximum happiness to provide for a family.
6) Always Remember That Everything Is Relative. The best way to determine worthwhile passive income streams is by comparing the likely return (IRR) with the current risk-free rate of return. If I round up, the 10 year bond yield is at 3%. Any new venture should thoroughly beat 3% otherwise you are wasting your efforts since you can earn 3% doing nothing.
What I’m doing: My realistic goal is to have a blended annual return of 2x the risk free rate. With a current 5% hurdle, I am not paying down mortgages that cost less than 4%. Debt at 5% is a wash. My realistic blue sky scenario is a 3-4X rate of return over the risk free rate which can be achieved with property, stocks so far for the past five years, and certain private equity investments.
7) Never Withdraw From Your Financial Nut. The biggest downfall I see from people looking to build passive income is that they withdraw from their financial nut too soon. There’s somehow always an emergency which eats away at the positive effects of compounding returns. Make sure your money is invested and not just sitting in your savings account. The harder to access your money, the better.
Make it your mission to always contribute X amount every month and consistently increase the savings amount by a percentage or several until it hurts. Pause for a month or two and then keep going. You’ll be amazed how much you can save. You just won’t know because you’ve likely never tested savings limits to the max.
What I Do: I’ve set up multiple investment accounts outside my main operations bank that deals with working capital e.g checking, paying bills. By transferring my money to a couple brokerage accounts and two other banks as soon as it hits my main bank I no longer have temptation to spend on frivolous things. As a result, I can wake up 10 years later and reap the rewards of compounding.
My 401(k) is the best example where consistent contributions over 20 years has grown to over $580,000 without any savings pain given it just became a part of life. Real estate is also a fantastic asset class for the long term. It’s fantastic to enjoy your home, pay down your mortgage each month, and end up with a paid off asset that has likely appreciated during your time of ownership.
8) You Must Force Yourself To Start. “A Journey Of A Thousand Miles Begins With A Single Step.” Laozi was a great philosopher who penned this popular English translation. Everything great started somewhere and you must set aside one day to tackle your financial independence goal. Circle the date on your calendar and cancel all other distractions.
What I did:The first two years of work in NYC was brutal. I told myself there was no way I could work on Wall St for my entire career because I’d probably die from heart failure by age 40. Having an early death in my mind willed me to save 50%+ from the first year onward and devise a CD, real estate, and stock investment distribution system for my savings every year.
I thought about starting this site for at least a year before I hired someone from Craigslist to give set me up and push me forward. Hiring someone to get started is totally worth it if you are a master procrastinator. You can now learn how to start your own site with my step-by-step guide to save yourself time and money.
PASSIVE INCOME SNAPSHOT
The below is my latest estimated passive income streams as I look to retire for a second time. I consider interest, dividends, rental income, and royalties as the only passive income streams. I do not include my online income from my business other than my severance negotiation book because writing takes a lot of work.
* I use Personal Capital to track all my finances in one place. It’s much easier to use their free software to follow 28 accounts on one platform than to log into various accounts to check my balances. They’ve also got great tools for x-raying your portfolio for excessive fees, recommending a more optimized asset allocation, and planning for retirement with their Retirement Planner.
Dividend Income: Dividend income is wonderful because it is completely passive and is taxed at only 15% if you are in the 25%, 28%, 33%, and 35% income tax bracket. If you are in the higher income tax bracket you will pay a 20% tax on your dividends. My dividend income portfolio mainly consist of dividend equity and bond ETFs such as DVY, VYM, MUB, TLT, and IEF. Total stock and bond income is a little over $100,000 a year due to a heavy accumulation of stocks and municipal bonds after selling my house.
Please read The Proper Asset Allocation Of Stocks And Bonds By Age to learn how to best structure your investment portfolio by age. The article goes through the very important “why” so you can invest more confidently for your retirement.
Real Estate: I currently own two rental properties in San Francisco, one vacation rental in Squaw Valley, Lake Tahoe (2/2 condo), and my primary residence.
Real estate is my favorite asset class to build wealth because it is easy to understand, tangible, provides utility, and rides the way of inflation. I recommend individuals try and get neutral inflation by buying their primary residence as young as possible. The power of inflation is just too hard to counteract.
If you own physical real estate, consider refinancing your mortgage if you haven’t done so in a while. Mortgage rates in 2020 have fallen to six-year lows, even after a 10+-year bull market.
Credible has one of the largest lending networks online where qualified lenders compete for your business with real quotes. You can get a quote in under three minutes and compare the various rates and lenders all in one place. I recently refinanced my primary residence to a 7/1 ARM at 2.625% with no fees.
Other:
How To Engineer Your Layoff – In 2012, it took me four months of absolute focus and two years of data to publish my first e-book about helping people negotiate a severance. The book went through over 30 revisions by four people. Then I updated the book for 2020 with 80+ more pages (190+ pages total) using more successful case studies and highlighting more strategies for those who want to break free with money in their pocket.
The book now generates over $50,000 a year in passive income and has helped numerous people walk away with nice severance packages and healthcare benefits so they can pursue their dreams. Below is a snapshot of my Paypal account highlighting books sales.
Venture Debt – I invested $120,000 in my business school friend’s venture debt fund. He started his own after spending 8 years at one of the largest venture debt funds as a Managing Partner. I’m very focused on income generating assets in this low interest rate environment. The true returns are yet to be seen, as the fund has a 5-7 year life before it returns all its capital.
Real Estate Crowdsourcing – After selling my SF rental house in mid-2017 for 30X annual gross rent, I reinvested $550,000 of the proceeds ($810,000 total) in real estate crowdfunding, $600,000 in dividend stocks, and $600,000 in municipal bonds.
My goal is to take advantage of cheaper heartland real estate with much higher net rental yields (8% – 12% vs. 2% – 3.5% in SF) and diversify away from expensive coastal city real estate.
As of 2020, I’ve invested $810,000 in a portfolio of 17 different commercial real estate projects across the country through real estate crowdfunding. My favorite platforms are Fundrise, for all investors, and CrowdStreet, for accredited investors.
There is a multi-decade demographic shift away from expensive coastal cities and into the heartland of America due to lower costs, the rise of remote work, and technology that enables telecommuting. I believe secondary cities like Memphis, Austin, and Phoenix will outperform cities like New York City and San Francisco.
If you want to invest in individual commercial real estate deals, you can check out CrowdStreet, my favorite real estate marketplace for accredited investors. Their focus is on 18-hour cities with faster growth. Further, they charge the sponsor a fee, not the investor. Finally, they have a direct-to-sponsor business model so there’s more efficiency.
Fundrise is great for all investors who are interested in investing in eREITs (funds) for broader exposure and diversity. Fundrise has much lower minimums and is consistently one of the most innovative and well-funded platforms today.
What About Other Income Streams?
As part of the Passive Income Framework section, we are playing the game with integrity. It’s no fun beating the Big Boss with a cheat code or super weapon that annihilates all enemies with one click of a button. The goal is to develop income streams that keep rolling in if we do nothing at all!
Income streams that don’t count:
* Capital gains: Unless you can repeatedly sell stock for profit, capital gains is a one off item. It’s just as easy to lose money in the markets as it is to make money, so stop pretending like you are Warren Buffet.
* Freelance writing: Quality freelance writing takes tremendous effort. Ironically, the better the quality of your writing, the more you don’t want to freelance and just keep the articles for your own site. Freelancing is a great way to earn side income, however, it’s not really for me. I’ll probably take on one or two freelance jobs maximum per year and write no more than four articles a month elsewhere.
* Financial Consulting: I used to do four financial consulting sessions a month on average for $1,500 each session, but stopped in 2018 in order to focus on taking more care of my son and now daughter.
* Selling anything: If I decide to one day sell my Roberto Clemente rookie card for $800, I’m not going to include this in my passive income streams because I’ve only got a couple of them. Same thing goes for selling a watch or electronic device.
* Blogging: This 3,500 word post has taken around 20 hours to write with a dozen revisions. Content does not magically appear out of thin air as some might believe. It takes a tremendous amount of effort, consistency, and creativity to come up with helpful and interesting content. That said, I enjoy blogging so much.
It’s been over 10 years since I started Financial Samurai and I’m actually earning a good income stream online now. Financial Samurai has given me a purpose in early retirement. And, I’m having a ton of fun running this site as well.
Build Passive Income Already
“He who fails to plan is planning to fail.” Winston Churchill
Building passive income takes a long time. The key is to create a plan, save as much as possible, and just get going. Start investing in assets where you are most comfortable. Always start small and work your way up. Also consider creating your own income producing products.
I never would have thought a book about severance negotiations would earn more in passive income than a condo that now costs $1,200,000 to buy. Technology and the internet have tremendously lowered the cost of starting your own site and reaching millions of people.
Do something long enough and good things will happen. All the best in your passive income journey!
Recommendation To Build Wealth
One of the best ways to build wealth is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts on their Dashboard so you can see where you can optimize.
Before Personal Capital, I had to log into eight different systems to track 28 different accounts (brokerage, multiple banks, 401K, etc) to track my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing, how my net worth is progressing, and where my spending is going.
One of their best tools is the 401K Fee Analyzer which has helped me save over $1,700 in annual portfolio fees I had no idea I was paying. You just click on the Investment Tab and run your portfolio through their fee analyzer with one click of the button.
They also launched an incredible Retirement Planning Calculator that pulls in real data from your linked accounts to run a Monte Carlo simulation model to output the most likely results of your financial future. I strongly suggest you run your own numbers, play around with the income and expense variables, and see how you stack up. It’s all free and easy to use.
Updated for 2020 and beyond.
I have virtually no relationship with money , and never have. I’m retired, 69 and living now with my daughter. She and her husband are slowly introducing me to the concept of having a healthy relationship with money. They earn a lot of income and are working on building a passive income.
All this is a foreign language to me, but I’m slowly grasping that money isn’t evil, nor are people that want and have it. I’m late to the game yet I’m determined to understand money and allow it into my life. Perhaps more later. Your article was somewhat understood and very much appreciated. Thanks
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Thank you for the insightful article. Presently working on the active income and starting capital. Do you have any advice on increasing active income?
Take all your profit from active income and start investing in yourself. Also, create a blog or a youtube channel talking about your field `cause others novices have tons of questions about your market/service.
Hi Sam,
Thanks for the good articles, website, and work that you do. I’ve been coming to your website more and more often to learn and get good ideas. Quick question, aside from Personal Capital, how did you build your passive income report? I don’t see in personal capital where it kicks out that kind of financial summary. Are you using that software or another to generate the quarterly and annual reports? Thanks!
Dear Sam, I hope your readers really understand the totality of your story. After, reading some of the comments I am not sure many do. Here it is in in a nutshell.
Diversify safely but DIVERSITY. You do not need to get the best and highest return all the time. If so, you are not earning passive income you are earning active income which is taxed differently (see IRS.GOV passive -vs- active income definitions). As an investor you do not need to be chasing ‘the almighty dollar’. This is a losing proposition. Make the dollar come to you.
The CD is one of the most effective ways to create passive wealth over time and has been used by investors for generations. Ask your grandparents; it is highly likely they own CDs (TDs) with their local bank or Credit Union. This is done by creating CD ladders to maximize effectiveness. Most Bank and Credit Union CDs have zero fees attached unless you cash out before maturity.
My tip: If you have not yet, look into doing business with Credit Unions. You maybe pleasantly surprised by the great financial products they have and low to zero fees. Have fun!
Great read! How is your blended CD rate 3.75% if the highest CD right now is 2.5%?
Great question! It’s not now. The best CD I have, which is actually great for its term, is the CIT Bank 12-month CD at 2.5%. I used to get 3.75%, but my old CDs rolled off.
You describe a life w/o $100,000.00 in student debt. No one in their 20s have 20% as a down payment. The life you describe no longer exists. Assume you are 25, have $100,000.00 I student debt, live in S.F. and need 20% to buy your first piece of property, how would you do this? You are lucky because you were born before everything went to shit.
Charles I agree and I’m alder than Sam ! Sam the one thing is that you are lucky to have had the fortitude to see the future and using your reitrement to raise your child .. I have 3 sons I love so much .. cherish ever moment and one grandson now – but had to work along w then husband when they were younger … as do most people — you have set up a great model / however people have children in their 20s and 30s …so there has to be a model similar to yours that address’s raising children when working
And yes what you do sounds like more fun !
I definitely agree with you. I’m a 21 year old and I can tell you without doubt, MOST people my age and up to late 20s can’t even dream about buying a house anytime soon. Especially in larger more expensive areas and how fast the market keeps spiking every month. However, I know it can be possible.
My husband is 23 years old. About one year ago, he relocated to a different state that is more family friendly and DEFINITELY more cost friendly than our hometown Portland, OR. We did have to get some help from his parents for a down payment, but we were able to purchase our first home. So, at the young age of 21 and 23, my husband and I are homeowners.
We really don’t make a ton of money and have to budget a lot and rethink our priorities often, but we think it was a great investment and is giving us a good leg up for our future. We’re working our way towards more passive income and financial freedom.
Our budget sure is a little tight at the moment, as we’re still in entry level jobs and working our way up with sources of income, but owning a house is possible and very rewarding!
Actually I’m living proof of having $110k in student debt after college. Paid it off in 2 years by working my tail off, and then I saved up a down payment on a home by 28. I just passed the $510k mark in net worth. The only thing I can advise is the attack that debt and get interest working on your side. You can’t start passive income until the student debt is gone. The interest rates on the debt is often higher than the rate you will get from passive income.
Pardon for being a bit of a newbie to true investing outside of a 401k. What about those of us who have 1) Just been laid off, and unable to find work due to lack of a degree (apparently 17 years in the industry with 5 certifications is just simply not enough – which is okay. It gave me the kick in the arse to get back to school finally) 2)Have three children to support (age 11 and under), and 3) Oh yeah – cannot find work. What do you recommend when the only source of positive revenue has ceased to come in and you now have less time than ever – due to responsibilities (i.e. doing well in university = academic scholarships means investment in time, plus spending 20 min breaks with kiddos) – to create positive sources of income ? I truly am wondering from an investor’s point of view how you would handle the pivot point of life if ever you had been faced with it. I realize this may be only imaginary, but at this point, I welcome your “what ifs” scenario on this one. You’ve truly done amazing work and I thank you for being so transparent.
Passive income building has become a major goal of mine recently. As a 30 year-old, I already allocate roughly 50% of our household income into investments. While I have several sources of passive income already, they don’t provide anything close to my eventual goal. I admire the work you’ve done to reach this level of independence.
One thing I’ve realized is this: It’s FAR easier to work for an employer than it is to develop durable passive income streams for the average person. Why? Because working for an employer in a place that “needs” you means that it’s possible to show up and give a 50% effort. You can show up, put in your time, go home, have a beer, watch TV, and rinse and repeat all without REALLY having to put in the effort.
Developing passive income is different. With the exception of one of my passive income streams (cryptocurrency mining), all of the others require real, hard work. Truly, I understand the barriers for people getting into building alternative income streams. I would say that most people WANT passive income, but truly aren’t willing to put in the blood, sweat, and tears to make it happen.
However, I think for those who are willing to do what it takes, the sky is the absolute limit. As an example, I’m trying to take a page out of FinancialSamauri’s book and create an online personal finance and investing blog. It is an enormous undertaking, and as a new blogger, there is a seemingly endless amount of work to be done. That said, I hope that one day I can not only generate some passive income from the hours of work I have put and will put into the project, but I hope to be able to help OTHERS reach their financial goals.
Great content — Thank you for sharing!
Question: You mention receiving $200k of passive income a year, but your chart shows half of that coming from real estate holdings, and reading between the lines it appears that you hold mortgages against those holdings. Then you conclude that $200k/yr of passive income should be enough to live comfortably anywhere in the world. So are you subtracting your real estate expenses (taxes, insurance, mortgage payments, maintenance, remote property management company fees, etc.) when you report your passive income from those properties? Really I think it’s the net (after taxes and everything) that tells us what is left over to “spend” on living, right? When I set up my spreadsheet to retire early at age 47, I calculated the after-tax income I would need to live. Then I compared that to my income streams (estimating tax on the taxable income streams) to measure the surplus/shortfall. Also some good advice from GoCurryCracker: If you can minimize your taxes so you’re in the 15% tax bracket, you can possibly receive tax-free long term capital gains. I agree with your philosophy that time is more important than money as we age. I am not sure I agree with a philosophy that is fixated on needing such a large income, and would rather minimize taxes if it’s all the same on the happiness meter. Furthermore, having 20 plus income sources in the name of diversification adds stress and requires more management (TIME!). I think this is fine for those of us while young, as we have the energy to work hard. But as time becomes more important, the extra headache of managing, planning, and buying/selling our assets becomes a resented hindrance on par with the resentment we felt when working for an employer and fighting traffic each day to go to a job we hated. Every thing we own in actuality owns us, by virtue of its demands on our time and affections, and that includes investments. It also includes our home, and is a good reason for downsizing. As long as we have food on our table, a roof over our heads, and clothes on our bodies, what more do we need? I think we need to consider freeing ourselves from the weight of the chains of managing too many ventures. Personally, I plan on investing in no more than 5 simultaneous ventures ever, with the exception of some IRAs that I just plan to let sit for the next 20 years (and therefore no thought or anxiety required).
Yes, the real estate income is after all expenses. For example, one of my rental properties was grossing $9000 a month. Then I sold it this summer to simplify life.
I’ve been thinking about selling rental property for years now and I’m glad I waited until this year. You can read the post here: https://www.financialsamurai.com/why-i-sold-my-rental-home/
When I was 34 years old and left corporate America, I had a lot of time to manage my semi passive investments. But now that I have a son, I don’t want to spend any minute doing something that’s not with him.
Hi, it’s probably been brought up before, but the statement “you can’t touch pre-tax retirement accounts without a penalty until 59.5” is incorrect. You can touch the traditional 401k accounts with a SEPP (substantially equal payment plan), and not pay the 10 percent penalty. You can also touch a Roth without the 10 penalty using the same strategy, although I understand you will pay taxes so you lose the Roth’s advantage. When I found this out, I stopped contributing to Roths because I wanted to retire early. Who knows if they will even live to age 59.5? So many people don’t!
You mentioned in your blog “Where I am dragging is my blended average CD interest rate of roughly 3.75%. It’s guaranteed money, but one of my biggest goals is figuring out how to reinvest this large nut starting in the next two years.” I wonder what you have come up with in that regard and what was the outcome?
EJ
I ended up investing $510,000 in RealtyShares, a real estate crowdfunding platform to take advantage of cheaper valuations and higher rents in non-coastal cities like in the Midwest. Target annual returns are 15%.
Here’s my 3Q2017 Investment Tracker Recap. I sold my SF Rental house that I owned since 2005 this year b/c someone paid my about 30X annual gross rent, which is a very rich price.
Sam!
Your articles are so in-depth and helpful, I’ve never seen anything quite like it. I am a 22-yr old finishing my last semester of college, studying Computer Science and Psychology. I’m in a really good place with my finances (2k savings, no student debt, only expenses essentially rent, groceries, and utilities) and I want to get ahead financially so I can pay my parents back and save up a lot.
I plan on getting a position as an entry-level software engineer, but I want to get really ahead in my finances. Are there any passive income streams you recommend the most for young people who don’t have much experience yet in the game?
Thanks,
Matt
Hi Sam,
I’ve been reading a lot of personal finance blogs lately and somehow stumbled across your site. Love the level of detail and transparency that you provide. You don’t mention student loans or other debts. Did you have any? I’m assuming that your employer paid for your MBA. You must have been receiving a high salary to be able to save so much money.
Thanks – keep up the good work!
Hi Sam,
Recently found my way to your site via yahoo and a lot of your points spoke to me. A little background on myself, I’m 28, a father (my 18 month old is my world), and a soon to be husband (she’s my universe lol).
I’ve been researching a path to financial independence, and the wealth of knowledge here is amazing, but at times overwhelming. I’m honestly not quite sure where to start. Whether it be paying off debt (which I’ve always heard is priority 1), or sinking money into realtyshares or CDs for growth. I’d love to generate a passive income (in a few years time) to supplement some of my day job to have time to spend with my little one during her golden childhood years, but not sure if there’s even a right order to go about it.
Feeling lost in this crazy financial world.
Anthony
A great list !
I tried all kinds of ways to make money online
What works best for me is koocam
I teach my hobbies and sell my knowledge in every field
It’s great
Gotta love anyone who collects Roberto Clemente rookie cards
I went a slightly different route in that I have no portfolio or much savings to brag about, but my net “technically passive income” exceeds 8k per month.
I did this by starting a swimming pool servicing company, grew the business actively for about a year, and hired 2 people to run it for me. I do nothing now except pay them (I pay well… it pays to pay well) and it’s been in business many years now.
I know it’s not millionaire status, but with repairs and billables I net over 100k per year and do nothing but travel and live light.
When considering income, sometimes out of the box thinking creates more opportunities. Next goal? Buy an apartment building.
Love the idea of making your passive income into a game. Right now my partner and I are having a “side gig income” competition. Makes it a lot more fun to sit down and rock out a few hours of freelance when the competition is on the line. :)
As an struggling young Engineer (back in the Carter era) I bought anything I could renovate then rent to justify paying the 18% interest. I never took vacations but worked on my properties all in the pursuit of passive income. I drove junk for many years & many months I just got by on credit cards. My friends & colleagues were amused by my ‘stupidity’ but most are still working to make enough for retirement.
At 49 I retired when my passive income eclipsed my W2 JOB$, but it also came with a suite of creative deductions.
Since then my wife & I continued to accumulate a LOT of property & today enjoy an enviable passive income stream.
Start early, ignore the pain of going without & it will never disappoint you.
Sam,
I have been following your journey to build passive income and financial freedom. I started my journey three years ago at the age of 25. Hoping to share my experience via blog posts so that I can touch as many people as possible to further build an inner-community that will share ideas and trends in terms of financial freedom.
Based on my initial experience of passive income, I feel real that real estate is best vehicle to build long-term investment. I live in Los Angeles and was able to cash flow my first rental property. What are you thoughts about starting out to build a passive income portfolio? I have utilized Lendingclub, online savings, and a small dividend/bond portfolio.
-GenWeFinance
Wow! Simply wow. I didn’t realise this was even possible. How were you able to save as much as 50%-75% of net income day 1?????
Did you have no rent to pay? Living costs? Transport costs?
So so impressive – but how realistic is that much saving for everyone else?
Nonetheless, an important example and guide to everyone reading
I was saving 50% of my after-tax income after about six months of working because I stayed late and ate all the free cafeteria food, and I shared a studio with my friend from high school.
I realized after the first month, but there was no way I could last more than five years in this type of environment. I was wrong because I got a raise and a promotion to go to San Francisco two years later. As a result, the lifestyle was better, I can save more money, and I lasted for another 11 years for 13 years total.
Those are some well diversified passive income streams. I’ve only been concentrating on building up dividend and rental income, but these assets are quite expensive right now. So I’m sitting back and building up cash for the next great investment opportunity.
I’ve been interested in finding ways to make money with less time involved. I enjoyed reading your post. Thank you for sharing. I just started blogging and would like to get more readers.
Sam,
So you would take a $1000 monthly payment instead of a $100k cash out if you were given the choice from your employer?
You could use the 100K to buy a business and make more than $1000 monthly, no?
See, I have few options. I have a townhouse with $100k equity. It worth $280k and I owe $165k.
1- I could get the $100K from employer and try to pay off the house
2- I could sell the house, use the money to buy a business, a franchise maybe.
3- I live alone, I could rent the house ( mortgage is $1400, will rent for $1900) get a business that has room for me to live in, keep the $1000 payments from the employer.
I am 48.
What would you do?
Ben
Hi Sam,
nice article again, I am just starting to create my own passive income stream but I am right at the beginning, hope I will get close to where you already are. What you have created is really awesome and very inspiring.
Cheers
Andy
Actually I like mixture of passive income , still have to learn about rental properties, but so far investing for last 9 months has giving a good return on investment and able to save 24k in 401k between me and spouse.
I first discovered the power of passive income when I was a senior in high school. I started a mobile billboard business where I would rent a small piece of land from someone who had land along a busy highway. Then I would place one of my billboard trailers on the land and rent out the ad space on the billboard. I would usually charge about $300 per month for the ad space, meanwhile I was only paying $50 per month to the landowner for the ground rent. I got to the point to where I had 9 billboard faces and was making quite a substantial income for someone in high school. I really learned how passive income could free up my life… this business is what lead me into investing in real estate.
yourfirstmillion.org
Love your articles. I think everyone is very different as far as how much passive income they need to meet their goals. I’ve read a lot of your articles and really enjoy your thoughts. I have a masters in finance and understand the math of keeping the debt but my emotions are such that I need to try to finish off paying off my last debt (mortgage) in the next two years. At 34 and only worth 525k I’m doing better than a lot of folks my age but it will be difficult for me to catch up in the passive income game without leverage. That is the main reason I recently created a website to try to bring passive income opportunities in my area to me.
Lots of good insights here. I’ve just recently gotten my own website for making online income. Also gotten a website for my fledgling voice over business. There’s a lot to learn when it comes to making passive income online, especially if you’re not financially savy, this is a very helpful blog in that regard, with all the useful tools and reference materials, it certainly removes a lot of guesswork.
You can also use that sum for interest income
Certain lenders will use a calculation that creates a “qualifiable” income on the asset/$1million dollars.
So yes the $1,000,000 asset even when not receiving/creating monthly distributions will assist in qualifying for a home loan.
Ok thanks! If I added like 3% on my return on investment a year ($2500) a month, could the help me afford a bigger loan?
Yes, it could work, but the question is why would you want to do such a thing. Until you’ve “made it” buying a house typically isn’t a good use of excess funds. Buy assets that provide a return. For instance, why don’t you use your income to buy a house and the additional investment returns to pay the mortgage on a rental property.
So let’s say you have $1,000,000 in mutual funds averaging 8 to 12 percent a year. Could you theoretically use the return on investment to afford a bigger house than your income would allow? Basically taking 25% of your income and then use part of your return on investment to pay for the house? Would the bank still give you the loan?
I’m always interested in earning more passive income. One thing I did was buy a website and hire someone to run it. I keep a hands-off approach on it and only put in maybe an hour/month. It’s worked out pretty well. I’m also exploring more things like a book and I’ve already created a course.
Buy a website?? I have never heard of this. Could you share a bit on how this is done?
Very inspiring post!
I really enjoyed how you listed all of the reasons to build passive income streams as well as the framework. You also made an interesting point about freelance writing on how the more skilled writers want to keep posts for their own website. Good insight because freelance writing is something I’ve been looking into for income recently. Also, it’s amazing what you’ve been able to accomplish with your blog over the past 6 years. It’s so motivational to see the success of Financial Samurai. I’m not in a place to afford any consulting, but, I wish I could pick your brain or get mentored by a successful blogger such as yourself…Not trying to blow smoke lol. It would just be so great to have someone who’s done it provide guidance around the direction of the blog, ways to earn, and on the general concept. Always enjoy your posts. Thanks for sharing :)
Agree with you 100%, passive income must be the key to achieving financial independence. Like Warren Buffett says “If you don’t find a way to make money while you sleep, you will work until you die.”
Inspired by you, I started a tax/personal finance a month ago. I figured if it works out, it will create a good side income for me. If not, at least I can use the blog to build my brand as a tax lawyer. Other than that, my current investment portfolio is heavily focused on index funds because of its historical performance and tax & cost efficiency. Right now my dividends income every year is about $14,000. I also have a good amount of unrealized capital gains every year from my investment, though I don’t count the capital gains as my passive income as they are paper gains, at least for now.
Nice job! Why not right? It costs so little to start and maintain a site nowadays. Think about how many tax laywers are out there who do NOT have their own website. You easily stand far above them in the online crowd, and I’m sure it will help you build more business.
I hope more folks can read: Blogging For A Living: How Much Can You Really Make Online
I came across your site and I love it! My husband and I work in corporate America and I own a consulting/coaching business. I have a goal to gross 1 MIL within the next 10 years I’ll be 40 then. How can I begin now? How do I find a millionaire mentor? We live in Philadelphia, PA all of our friends and family are mostly employed some with small businesses however i have huge goals I am working so hard to become a full time entrepreneur. Seems like everyone we know are all on the same level and I fear we’ll stay here of we don’t meet someone willing to show us how to level up. Any suggestions?
Thanks for your ideas I love them, also agriculture investment can be nice like tomato hothouse with half the produce for the grower and the sales profit for the grower The genocide against the international Japanese community some 2 million in the European Union at least can break the world economy and leave the One Sunrise War for True Japanese Survival the only alternative
Hi Sam,
I absolutely enjoyed reading this! You have definitely opened up my eyes and motivated me even more to work harder towards financial freedom. There will always be a way!! Thank you so much!
Dear Sam,
I have been looking into getting onto the US scene, especially on the idea of wealth management portfolios but I’m a Bruneian and not living in the U.S. The tips you offered are great but do you have any suggestions or ideas for us international investors who would like to get a slice of that delicious cake called ‘financial freedom’ as well?
Warm regards