As many of you know, passive income is the core strategy of my early retirement plan. Currently, we have about $1,400/month of passive income. Of course, it would be better to have more passive income, but even $1,400/month took a very long time to build. Some readers were wondering how I got started so I wanted to write a bit more about the beginning stages. We took the long slow road to passive income. I’m sure there are faster and easier ways to do this and I’m searching for that elusive golden goose too.
Start Making Passive Income
- Spend less than you earn and save some money in the bank. This is the first step to passive income and I’m sure many of you are already doing this. Your savings account pays interest and that’s the first passive income most people see. The interest rate is so low now so you won’t see much income, but you have to walk before you can run.
- Invest in equities. I invested in mutual funds and growth stocks soon after I started working. I kept investing through the down cycles and was able to build up a modest after-tax stock account. Over the last 2 years, I have been moving these investments toward dividend paying stocks to generate passive income. The building process took a long time for me because the stock market was so volatile since 1999. If you are just starting out, you can invest in a low cost index fund/ETF such as VTSMX and eventually switch over to a dividend portfolio. I think that is probably the easiest way to go for someone just starting out.
- Rental home. We purchased a home in 2000 and lived there until 2007. When we moved, we rented the house out instead of selling it. I think many landlords started out this way. The rental home worked out well for us so that gave us the incentive to acquire a 4-plex. The 4-plex is cash flow positive so far in 2012 and it should get even better in 4-5 years.
- P2P lending. I actually won $50 from prosper.com during #YakChat(twitter chat) and that got me started with the lending account. I funded the P2P account with $1,000 and have been receiving about $10 in interest per month. The return is better in the beginning because people usually default later on in the loan so we’ll see how it goes. I’m planning to increase the sum to $10,000 eventually. This will generate about $100/month. If P2P continues to work out well, then perhaps I’ll increase it even more. I think you need at least 100 loans to be diversified so if you have $2,500 lying around, give prosper.com a try. I would only invest money that you can afford to lose here because the return is NOT guaranteed in anyway. If we have another recession, you can bet that the default rate will go through the roof. Sign up to lend and get 10.69% Returns With Prosper.
So you see, it’s not difficult to start your passive income rolling, but it does take a lot of time. Your interest payment from the bank maybe $3-4/month now, but if you keep working on it you can get to $5,000/month in time.
Readers, do you have any plan to make passive income?
There is a great new website to help you manage your investments – Personal Capital. You can keep track of your income, expenses, and investments, all in one place. Personal Capital is geared for investors and have many great tools. See my review of Personal Capital and how they helped me reduce my investment fees.