In creating a passive income it is of course the intention to make investments that contribute to your goal. If you do this without having a plan in mind, you will make investments that do not make sense, or invest resources that you may need for a personal financial buffer. To prevent this, I have drawn up a plan with the return that I expect, and how much I expect to invest every month.
Plan for investments
I invest only a very small part of my income. Why? Because I want to show everyone that it is possible to build a passive income with limited resources. By saving just € 100, – per month, you can already build up a large amount of capital if you make the right investments.
In my strategy I start with a monthly investment of € 100, – which I increase by 1% every month. I do this this way because I assume that my income from work will increase by 12% annually. This keeps the investment proportional to my income. I understand that this will not be the case for everyone. That is why I say: if you keep your investments at € 100 per month, you will already be able to build up a capital that provides a passive income.
Plan for return
Of course, when you make a financial plan, you also look at the return on investment. In other words: How much return do my investments have to make? I assume an average annual return of 12%. Now I hear you think: “only 12% You can already get 20% efficiency on some platforms!” That’s right. However, I want to spread my risk across as many platforms as possible. This creates situations in which I only get 10% return, but also situations with 20% or more. Then the 12% will be on the low side, but more efficiency is always good. When the return turns out to be less, your financial plan is becoming worthless.
Plan for Power
At the moment that the above 2 plans are made, there is actually an asset planning. The deposits + start-up capital with the return together form a capital growth every month. In this way you can calculate how much capital you got in for example 10 or 20 years.
Imagine: you start with € 1,000, – and submit € 100, – each month and your return is 1% per month (12% / 12 months because you reinvest the proceeds every month). Then in 10 years you already got € 26,534. This is an amount that you can look further. For example, for the purchase of an investment property to rent out or something similar.
In my way: Including the 1% growth per month. In 10 years I will come to a capital of € 42,889 and I have a passive income of € 425 per month. As soon as I have achieved this, I will make a new plan to initiate further developments, such as purchasing real estate for renting out.
The best thing about all this is that you make interest on interest. Your ability can therefore grow exponentially. Imagine after 10 years the € 42.889, – achieved. After this amount is reached, we stop investing. We will only reinvest the return. After another 10 years we have a capital of € 141.584, –
Another 10 years later, we have an equity of € 467,281. As you can see, the assets are growing more and more. We are talking about the year 2049. Suppose the return is still 1% per month, then we have a passive income of € 4.627, – per month. This is enough for most of us to be able to get around and pay the utility bills.
I would say, start small. Almost everyone can miss € 100 per month. Is that worthy of being financially independent in 30 years?