Even if financial independence is your top priority, achieving it is far from straightforward. Understanding the expenses is a crucial first step. Ensure that your income exceeds your expenditures. While this is common sense, a surprising number of people spend more than they earn. Next, study and itemize your spending habits so you know exactly how much you spend on items like clothing, restaurants, and transportation. Identify places where you are overspending or purchasing unnecessary products. This might seem unnecessary, but make sure your money is going toward necessities or things that make you happy. To give you an example, one cost I discovered I could eliminate was cable television. I cut my high-speed broadband bill from $230 to $70 a month and didn't miss all those channels I wasn't even watching.
Passive income source
Then, to cover your current expenditures, find a passive income revenue stream. You'll be financially free until your passive income exceeds your living expenses. But how do you know which type of passive income investment is best for you? Since you'll be earning passive income from this investment for a long time, you can invest in something you completely understand and that suits your lifestyle. Rather than investing in highly unpredictable opportunities, search for those with the best, most stable returns. Finally, you'll want an investment that helps you to maximize your capital by investing money in order to boost your future return. Perhaps better if the investment comes with tax advantages. Since it meets all of these requirements, I chose real estate as my first passive income investment.
Calculate how much money you'll need to achieve financial stability once you've selected your investment. Let's say you put $20,000 down on a turnkey rental property that pays you $3,000 per year in cash flow. If you need $60,000 in net cash flow per year, you'll need to buy 20 properties (with a total purchase price of $400,000). Where are you going to get the funds to invest? Examine your savings, 401(k), and other retirement plans. While these are not obvious investment options, some 401k accounts allow you to invest directly in real estate. Take into account the value of any properties you possess, such as your house.
Make calculated decisions
It's critical to run the numbers at this stage. Make no investment decisions based on emotion or instinct. The home is the primary source of equity for most Americans, and they depend on it for retirement. When property taxes and renovations are taken into account, though, using your house as your primary source of equity isn't ideal. Consider this scenario: In 2005, you paid $750,000 for a house on the West Coast. You put down 20% of the purchase price, or $150,000. People in this region are having trouble saving for a down payment because house prices continue to increase and they are unable to keep up. You invest $300,000 on upgrades over the course of 15 years, either with cash or a line of credit. You will need to refinance at some stage to cover other costs, such as a vehicle.