1. Establish Multiple Sources of Passive Income
Passive income, a buzz word of sorts in today’s world, is used to describe sources of income in which, one they are set up, they generate income over time with minimal effort.
There are many sources of passive income that every person should be involved in. The first, and most common source of passive income is through investments in the stock market.
Have you ever heard the saying “make your money do work for you, don’t work for you money”, well investment income in the stock market is the definition of this saying. Making sure that any extra money that you make goes right to investments like the stock market are key to retiring early.
The earlier you have money in the stock market, the more it will compound over time. Low risk broad index funds are the safest and most proven method for earning passive income through the stock market.
Another source of passive income that these investments can provide are through dividends. Dividends are regularly paid out amounts of money that companies pay out to their stockholders.
Many stocks will grow in value and also pay out dividends, which offers two different sources of passive income.
Another common source of passive income is through real-estate. Investing in real-estate can be an extremely lucrative passive income stream, but does often take more up front work than investing in the stock market.
Most individuals that invest in real-estate, earn money through the appreciation of the real-estate, as well as through rental income from the tenants that live there.
Once an individual buys a piece of real-estate, they generally will rent out the property themselves, our outsource the extra work to a property management company. The latter of which is less lucrative but also involves less work than managing the property themselves.
There are many other possible sources of passive income but finding what best works for you is key. Here’s a list of 15 other ideas for passive income:
- Create an online drop shipping store:
- Develop an app
- Build a website
- Rent out a property through air-bnb
- Become an affiliate marketer
- Sell an online course
- Buy and sell websites
- Become a social media influencer
- Make YouTube Videos
- Write a book
- Sell digital products
- Rent out your car
- Do online surveys
- Sell t-shirts
- Churn Credit Cards
2. Create and Stick to a Strict Budget
Arguably the most important aspect or key to retiring early it to create a budget and stick to it. This budget should include only what is necessary and a small amount allocated to things for enjoyment.
The more you can cut from your budget, the sooner you will retire. As mentioned previously, compounding investments are the best way to earn passive income and the earlier money gets invested the better it will perform.
At an average return of just 8% per year from the stock market, $100 that you cut from a budget today, could be worth close to $1,600.00 in 40 years.
Similarly, if you can cut $1000.00 from the use of a budget, that can be worth $16,000.00 in 40 years and so on.
When creating a budget, it’s key to stick to it. If you create the budget and then don’t stick to it, all you’ve done is waste a bunch of time creating the budget.
3. Cut Unnecessary Expenses Immediately
This goes hand in hand with creating and sticking to a budget. After creating the budget you should know what expenses you can reduce or cut.
The sooner those expenses are cut, the sooner that extra money can start compounding.
Here is a list of some of the most common ways expenses can be cut.
Reduce spending on eating out.
Meal prepping can save an extreme amount of money each week. The average person spends roughly $400.00 per month eating out. If you cut that in half, that’s already $2,400.00 per year saved.
Reduce monthly car payments.
Many people have cars that cost much more than they need. Downgrading to a reliable cheap car can save tons of money per month.
If possible, cut the car payment out all together if you don’t need one for transportation. This will have the added benefit of reducing costs since you won’t need car insurance any more.
Downsize your house.
Most people spend money on extra space in a house, but it’s often not needed. A smaller house also provides less maintenance.
Cut out Cable.
There are countless cheaper ways to access the TV you want without paying for an entire package through cable. Most people could survive with just sports and Netflix.
4. Increase Your Salary
Some would say this is easier said than done, but it is an essential part of retiring early.
For example, if your annual expenses are $30,000 and your annual take home pay is $29,000.00, you can only save $1,000.00 per year.
If you increase your salary by $5,000 per year take home, that’s about a 15% increase, but then you could save $6,000.00 per year which is a 500% increase in savings. In other words, a 15% increase in salary leads to a 500% increase in savings in this case.
Alright, we’ve laid out the case that increasing your salary can make an exponential difference in the amount you save, but how do you go about increasing your salary.
There are several key ways to increasing salary. The first and most applicable for everyone is to know your worth and ask for a raise every year. Many people do not ask for a raise and instead wait for one to come. This is a big mistake many people make.
Similar to the advise above another way to increase salary is to move companies or at least get offers from other companies often. Moving companies on an average of every 2 years will lead to the greatest increase in salary.
5. Relocate to an Area With Lower Costs.
Also known as a LCOL, low cost of living area, a tremendous amount of money can be saved by moving out of higher cost areas to lower cost areas.
This is most often possible with those that have the ability to have remote jobs. In these cases, individuals can keep the high salary of the expensive areas such as in the cities, but move to areas where the cost is lower.
This is even possible with those that cannot be remote through finding a new job in the lower cost of living location. Although, sometimes the pay will also be less in this area.
In conclusion, keep these 5 tips in mind to help you retire early or on time. Make changes now can save years or decades of free time in the future.