7 Tips on How to Retire Early by Investing and Generating Passive Income
Wondering how to retire early? The traditional image of saving for retirement is of socking money away in a 401(k) or an IRA, and then pulling money from that to pay for day to day living expenses once you’ve retired.
That might have worked at one point, but today it’s a broken paradigm. Combine the dramatically increased cost of living with the fact that people are living longer than ever, and there’s simply no way that this will work.
Just consider the way that 401(k) fees eat into your savings, and you get a hint at the frustration, even devastation, that await anyone attempting to go this route. What does that leave you, though?
Actually, by creating a passive income flow and with smart investing, you can retire early and live comfortably.
Change Your Mindset on How to Retire Early
We’ve already touched on this, but it bears mentioning again. The primary reason that people work to save money until they’re 60 years old is to build a nest egg. By retiring at an early age, you automatically cut out part of the time for saving, as well as the money.
That means whatever you save has to last you twice as long if you retired at 30 rather than 60. However, by changing your mindset about what retirement planning is all about, and realizing that smart investing combined with a passive income can ensure that you have a lifelong cash flow, you’re able to get out of the broken system.
Read, and Read Widely about How to Retire Early
Before you choose any investment option or decide that it’s time to retire, you need a firm knowledge base on which to grow. Build this base by reading, and reading widely. You’ll find a host of people who’ve achieved exactly the goals that you want to reach, and you can learn from their example, often in their own words.
For instance, take the advice offered by Tod Tressider of Financial Mentor, or pay attention to the store of Jeff Rose from Good Financial Cents. Others worth noting include Brad Sugars (author of Billionaire in Training), and Michael Gerber.
Invest in Income Producing Properties
One way to make both a smart investment and create a passive income flow is to invest in income generating properties. You can do this in a number of ways, including outright property ownership.
However, there are other options, such as investing in a property fund. This allows you to earn income from rental properties without the need to actually be a landlord yourself. It also allows you to invest in commercial and industrial properties, as well as multifamily rentals.
Buy a Business
Buying a business might not seem like the right way to create a passive income. After all, don’t you have to take an active role in order to ensure that the business succeeds? At first, yes. However, you can build the business to the point that you can bring in a manager to oversee the day to day operations, leaving you free to sit back and reap the benefits.
Sell the Business
If you aren’t particularly interested in owning a business over the long term, you can buy one, build it up, and then sell it. If you play your cards right, this will give you the money needed to basically retire as early as you want.
You can draw from that fund, but you can also reinvest it in other options to ensure that you have a constant stream of passive income, such as buying another business and repeating the process.
Cash in on the Airbnb Craze
Airbnb is perhaps one of the most visible success stories of recent times and with a little bit of savings, you can cash in on that trend. Rather than investing in rental properties, consider building your own custom home, designed from the ground up to be an Airbnb property.
With a little forethought and planning, and the help of the right architect, you can create individual “units” in the home, and then rent each of those out.
Of course, this leaves you in the role of managing the property, but once it is up and running, you should earn enough to live comfortably, and still pay for a property manager to take care of all the details.
Put Your Money into Bonds
Bonds don’t have the sex appeal of stock market trading, but the fact remains that they are perhaps the best option for anyone hoping to make savvy investments and retire early.
Why is that? Consider the fact that many experts predict that the stock market is now at its peak.
That means prices are going to fall, and they are going to fall fast. Any investment here will be worth far less than what you put into it. Also, consider the fact that the largest generation in our history, the Baby Boomers, are now retiring and pulling their money out of the stock market.
That will only hasten the end. Bonds allow you to protect yourself and your wealth from the massive, looming crash. Does that mean stocks should be off limits? No, it does not.
However, it does mean that you need to invest in the stock market with a very wary eye and make sure that your investments are diversified.
With the right mindset, the right knowledge, and an understanding of what it will take to retire early and live on a steady but passive income, you can break out of the cycle.
Why continue to do the same thing as everyone else when it’s obviously not working? Why remain part of a broken system?