Table Of Contents
Saving has its merits and is simple in nature: do not spend more than what you make. If you earn $47,000 a year, do not spend more than $35,000 a year – save the difference and invest.
Practically, I encourage my readers to instruct/order a minimum savings of at least 10-25% of their total take home and inject this amount into passive income investments (more on that below) on an automatic, regular basis.
Just let it keep going, and let time and compounding do its magic.
How To Save More Money
- Instruct your bank account to set aside 10-25% of all income that goes into a general income account to be sent to another bank account. This encourages auto-savings, and you “automatically” only see the balance in your general account that you can use, guilt- and worry-free.
- Go through your credit card billing and look at subscriptions you don’t care about or don’t use as often – stop those. The subscriptions that you do enjoy? Keep ’em.
- Make sure you don’t pay late fees to the bank, credit card or anywhere.
- Use cashback credit cards to pay your bills to earn a little more cash back on your spending.
- Pack lunch to work and eat out less often
Fatal Flaw Of Saving
I don’t usually spend too much time talking about saving, because saving has a fatal flaw: there is only so much you can save.
If you make $3000 a month, there is no way you can save more than $3000. Minus expenses, so normally most people can save up to 25% of whatever they make.
I also sometimes don’t like it if I can’t spend because I don’t have the income or surplus as opposed to not spending because I don’t like it: I don’t like or want to be miserable (but conversely, don’t spend for the sake of spending of course).
For most people who prefer to be employed and not start a side hustle or entrepreneurial journey, then the next best thing they can do to get ahead financially is to aggressively save as much as possible (possibly taking the path of frugality) and invest.
That is why I advocate so much on earning more with entrepreneurship, where there is no limit to how much you can earn – this is infinitely better than just saving.
Investing For Passive Income
Note: this is NOT financial advice – these are what I am personally doing and it works for me.
As you earn more with entrepreneurship and/or save more, the next step is to invest for passive income (or cash flow). It may sound a little scary, but to make it easier, investing is really about making your hard-earned monies work harder for you.
How do you multiply your savings and profits in a way that matches your risk tolerance?
For myself, I usually take larger, calculated risks with entrepreneurship and business BUT I take a more conservative approach when it comes to investing.
Before You Start Investing
- Take stock of your net worth, income and bonuses. Note all your income, cash on hand, savings, equities; as well as all your liabilities such as debts, loans, mortgages.
- Determine how much expenses you can shave off (see saving more portion above) as well as how much you can invest consistently and sustainably – do not bite more than you can chew. Be conservative. Ideally between 10-50% of your total take home.
- Set your objective:
- What’s your goal of investment?
- Is it to build $1000/month passive income?
- Or retire lump sum in X years?
What Are Some Investment Options?
- Rental / lease properties for rental income
- Dividend stocks such as equities and bonds for dividend income
- Cryptocurrencies such as Bitcoin and Ethereum and stake them for interest payment in cryptocurrency (I use this platform to invest, stake and get cashback in cryptocurrency)
Choose something you understand and within the amounts you can sustainably invest. Do not over-invest cos it takes time for compounding and investments to work.
The goal of this is to build your “automatic” passive income streams, that flows automatically into your bank account, that is more than your living expenses.
How Much Passive Income Do You Need?
Everyone’s numbers are different, as it is based on how much you need on a monthly basis.
A safe was to calculate is to track your yearly spending and add a 30% buffer to it and work backwards from there.
Here’s how I would do it: if I spend roughly $5000 a month all in,
- Add in 30% buffer: I need $6500 in passive income per month to be financially secure
- A whole year (12 months) = $6500 x 12 = $78000
- Assuming I like dividend stocks with roughly 5% return on investment (ROI), that means I need a total capital of $78000/5% = $1.56M to get $6500 a month
- Double check: $1,560,000 x 5% / 12 months = $6500
So my principal lump sum target will be $1,560,000.
How Do I Hit My Monthly Passive Income Target?
So using my same assumption of $1.56M as my target, the next questions will be:
- How do I achieve this?
- How much can I invest a year?
So assuming I can save $100,000 a year, and factoring compound interest calculator (I use this: http://www.moneychimp.com/calculator/compound_interest_calculator.htm)
If I pump in $100K a year, with 5% interest reinvested fully every year, I can hit my target of $1.56M within 12 years.
You determine your numbers, which can change by:
- moving to a lower cost of living area
- spending less / saving more
- earning more / investing more*
Usually it’s a combination of all 3 above, but I favor #3 which is earning more with entrepreneurship because there is a cap on how much you can save, but there is no limit on how much you can earn.
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