Set a Goal to Earn $2,400 in Passive Income
Creating a diverse stream of passive income puts you on the path to financial independence and retiring early. A great way to start is to set an achievable goal that is also a meaningful step towards your long term financial plans. I encourage investors to start with the goal of generating $2,400 per year in passive income. Earning $200 per month in passive income represents a positive milestone. These funds will cover some of your core monthly expenses like utilities or provide a revenue stream to increase your savings rate. Over time as you invest in more assets your passive income will grow and this revenue will cover more expenses like housing, transportation, and food. Eventually, all of your expenses will be covered by passive income freeing you from the requirement of a traditional day job or allowing you to save every dollar you earn from your job.
Turn Something You Do Not Need or Use into $2,400 in Passive Income
This process is about looking for something of value that you do not use or need and turning it into a revenue stream. If you want to earn $2,400 or more in passive income, one of the fastest ways is to find a roommate. When I bought my first apartment I immediately looked for a roommate to provide an income stream. The rent from my roommate cut my housing expenses in half and allowed me to channel the savings into investments. If you do not want a full-time roommate you could rent out a room on AirBnB for a few days a month or while you are away. If you have access to parking where you live but do not have a car you could rent out your space for $200 per month. Or if you have access to external storage you do not need you could rent that space as well. If you have a car that you do not need for daily commuting you could consider renting it on Turo, which is like AirBnB for cars. Turo has a car calculator on their site to estimate what you can expect to earn. Take the time to assess the risk versus the reward to determine if this is a good option for you. The success of financial freedom will only come if you get started and begin making progress. So start thinking creatively to reach this first goal of $2,400 per year in passive income. Once you earn this initial income stream you will find it only get easier to add future revenue streams.
Assets to Generate Passive Income
Another option for generating your $2,400 in passive income is through acquiring assets. If you purchase a rental property earning $200 in cashflow per month after all expenses, you have reached your goal. Over time rents tend to rise and you will see this income stream grow in future years. If you do not have money for the entire down payment for a property look for a motivated seller who might be willing to offer seller financing for a portion of the down payment or to finance most of the transaction. Many sellers are willing to provide financing over several years because it provides them with a passive income stream instead of a lump sum payment.
If you prefer equities you could look for stocks that pay a large dividend. One of the stocks I have owned in the past is Gladstone Capital Corporation (symbol GLAD) which is a little unique as it pays a monthly, instead of quarterly, dividend. Based on when I purchased the stock the dividend paid has been between 8%-10% per year. If the annual dividend is 8%, an investment of $30,000 would provide the desired annual income stream of $2,400. If saving $30,000 to purchase stocks seems daunting look for ways to generate more income through your current job, such as taking on more hours, or look for a part-time job to increase your income until you reach this goal. Every dollar from this additional work must be spend solely on acquiring stocks. Keep in mind that any investment in stocks has risk, so be sure to do your due diligence before you buy. Also look for others stocks that pay a high dividend to diversify your holdings. If you want to learn more about sources of passive income see 12 Types of Passive Income for Financial Freedom.
Income Stream Diversification is the Key
At the beginning of this article I stressed having diverse income streams. This is because asset classes move in cycles and one income stream may decline while others you own continue to perform well. You want to ensure that your retirement plans are sustainable, and investing solely in one asset class can expose you to significant risk. For example, if you were relying primarily on income from student apartment rentals to fund your retirement, you may now be facing a series of vacancies after the pandemic hit and any universities went to online classes. However if you held a few student rentals along with other types of real estate, stocks, bonds, and other assets, your income streams would remain intact. Diversification will protect you from these types of risks.
If you are looking for comprehensive lessons for gaining financial independence consider the book Become Loaded for Life! and if you are looking for a step-by-step workplan to help you achieve these goals see the 10 Stages Workbook.