We mentioned in our previous blogs that we are beginning to generate a passive income, enabling us to get out of the rat race and have more time to focus on the important things in life.
I suppose I had best define what I mean by passive income. Passive income is generated on a regular basis with little effort to maintain it, typically an investment or asset. Though it generally involves an upfront investment of time to set it up or educate yourself.
Compare this to an active income which is generated from your job. If you left your job your salary would stop, you’d default on your bills and you’d soon be bankrupt.
There is probably an endless amount of ways to generate a passive income, this website here suggests 43 (including writing an ebook, peer-to-peer lending, creating a product etc)! But some of the most commonly considered passive income streams are:
– Rental property (Residential & Airbnb)
– Businesses you own but don’t actively manage
– Building up an investment portfolio
By incrementally creating a passive income you are removing your dependency on your job which will slowly give you back more time to focus on what’s important. When I was working full time I said at least once a week “I wish there were more hours in the day”. I’m sure you have too!
It’s by no means easy to create a passive income. There is a big upfront investment of time (including research, education, planning) and capital (so you’ll need to have some appetite for risk) but what price tag would you put on having more time in your life? How many people look back on life and say they wish they worked more? In fact, over working is one of the five biggest regrets of the dying, so keep reminding yourself of this!
Our goal in 2016 was to begin to incrementally create a passive income in order to retire at 55. That statement itself raised a few eyebrows with our family, friends and financial advisor considering we’re expected to work until at least 65 (and probably 70 by the time we get there).
If we were to sustain our London lifestyle we’d need about 10 rental properties each costing 100k, which would take about 20 years or more to save up deposits for. This is a huge and time consuming goal to achieve, so we started rethinking things. How could we eliminate our active income now?
By turning to minimalism and living a more modest lifestyle (including not living in a major city or having a mortgage (by building a tiny house)) we will no longer need to create such a significant passive income. Therefore we could reduce the 20 year process down to one year.
One year!?! Having sold our London property and having a bit of capital behind us we have turned to stock and option trading to provide for our modest living costs. Currently we spend about 6 hours a week trading (more to come on this in another post). So what would we do with all this extra time? We’re doing the things we love and will start to look at the other 42 ways to generate additional passive income, which will further supplement our lifestyle and travels.