Earn passive income to never work again and live a lifestyle free from financial constraints.
Imagine a life where you wake up in the morning and do anything you like because you are free from work. You would so much spare time that your life would seem much longer. You can take on new hobbies, interests, and travel the world.
Work has become a four-letter word to your ears.
The only way to become free from work is to accumulate wealth and invest the money to earn a passive income. An “active income” is where a person goes to work to trade their time for money. They are nothing more than a financial prisoner of the economic system.
Passive income is earning money without working, for example, from investments.
Most people would stop working immediately if they suddenly came into possession of a large sum of money. However, unless you have won a lottery or inherited money you will need to accumulate wealth slowly over a long time.
Earn Passive Income from Investments
We live in a world where young adults may never be able to afford to purchase their own home. Home prices have inflated beyond the earning capacity of many young people. They simply don’t earn enough money to be able to borrow enough to purchase a home.
However, if young people can never save enough to purchase a home, don’t despair. It may be better to rent medium or long-term and invest your earnings for later in life.
Don’t borrow money, save money!
Borrowing a large sum of money to purchase a home to live in may cost too much in the long-term. When you borrow large sums of money, you will only pay large sums of interest and go nowhere. The loan repayment and interest payments will be more than the cost of renting a property.
Millennials Will Not Reach their Retirement Goals
Renting is Cheaper than Buying
This is a common argument of home renters to justify the cost of renting a property.
However, it’s always cheaper to rent than purchase a home in the short-term. If renting was more expensive than buying, everyone would buy and the rental market would collapse.
In the long-term, it’s cheaper to own a home than rent. When tenants rent long-term the rent rises over the years. When a home owner pays down a mortgage the interest reduces and more of the loan principle is repaid. After a period, say 5 to 7 years, paying a mortgage becomes cheaper than renting.
It’s especially important to own a home when you’re older and no longer able to work. Otherwise, you may have a poor existence in retirement.
Develop a Money Making Mindset
Renting Advantages Over Buying
Renting has significant advantages over buying. Firstly, it’s easy and quick to find a home to live and move in. Renters can move between properties every year or whenever the lease has expired.
Secondly, they can live close to work, schools, parents, beach or wherever they wish. They can live in areas where it may be too expensive to purchase a home, for example, the city center, coastal area, or mountain resort.
Another reason is renters can live in a small, medium, or large property. If they desire, they can sub-let rooms in the home to other renters.
A major advantage to renting a property is the tenant does not pay the property taxes, council rates, insurance, home-owners association (body corporate) fees, or maintenance costs.
Renters do not have to worry about rising mortgage interest rates, changes to property tax laws, changes to ownership, or maintenance of the property.
Earn Passive Income by Investing
When a young adult cannot afford to enter the home market it may be better to rent medium or long-term and invest their earnings for later in life. The power of compounding investment returns ensures the investor is wealthy later in life.
The secret is to start young and invest for a long time.
Example
A young person saves $20,000 per year and invests long-term into the stock market.
Each year the saving is increased by $1000. That is $20,000 in year one, $21,000 in year two, $23,000 in year 3, etc.
The long-term average return is around 8% per annum. The compound return builds up over time to produce a large investment balance.
After 10 years the balance is $360,000.
In 20 years the balance is $1,286,000.
At 30 years the balance is $3,438,000.
The annual return from the stock market varies widely from year to year, however, when investing for the long-term the return averages to around 8%.
If a person starts at age 20 and invests for 30 years, they can retire at 50 years of age and never work again. Then they can choose to purchase a home, keep investing or both.
But the important thing is to start the process today!