Living below your means is the beginning to financial freedom. No matter how big a lake is, it will eventually run dry if its outflow is greater than its inflow. It is the same with an individuals spending habits. Most people live at or above their means, giving little thought of the future, and their only source of income is their personal labor. They live in the moment spending for comfort in proportion to what they earn. When they stop working so does the inflow of cash. At that point, any puddle of savings they may have managed to accumulate dries up pretty quickly. How do we sidestep this disastrous pitfall?
Having additional streams of passive income flowing into a personal financial reservoir is the best insurance against illness or injury. It is also the way to travel in freedom and comfort as your funds are continually replenished even while vacationing. So how do we set up rivers of passive income? There are many ways to do this but I am going to focus primarily on just one in this post. First, the old saying that “it takes money to make money” is actually true to some extent especially when it comes to passive income. Before you can invest you have to develop the habit of living on less and start saving some money.
In an earlier post, I wrote that the money the average person spends on rent each month could go toward owning a comfortable van to live in, and paying it off in a year. After the year is up it would be very tempting to just go travel around the country as a debt free gypsy but it’s not time to totally let go of the reins yet. Continuing to work, live frugally, and saving money that would have gone toward rent is your ticket to true long term freedom. The earlier a person does this the better. This is a way to really kick start your economic engine! You will have established good credit history after paying off your van, and in many areas of the country what you could save in one year would be enough for a down payment on a house!
(I realized this is a condensed fast paced post. I will be talking about these topics more and in greater detail but this is sort of a summarized plan of attack for the savvy young person.)
Now when looking for a house, the goal isn’t to look for our ultimate dream home. We are doing our best to get on the other side of renting as soon as possible. If we save up our money for a down payment we could actually become the landlord. (There are many good books written about this). What I’m suggesting may mean putting off some of your personal comforts. But if the goal is to buy a house and use it as a rental, some sacrifices will have to be made. If you can find a duplex you could rent one side and live in the other, but if you want to get ahead as fast as possible, it would probably be best to continue living in the van and rent all the available space in the house out. Taking the time to study and discern a good deal will save you a world of hurt. The rent you receive from the property should more than cover the mortgage.
I know it is easier said than done but it really is that simple. This formula can be replicated until the stream of passive income is sufficient to support your lifestyle.