Could you quit work?
How much would you need to never work again?
Let me put that question a different way: how much monthly passive income would you need in order to never have to work in a conventional job ever again?
Obviously you'd need some sort of income from other sources but how much would you need to earn per month and from where?
If I weren't to save and no longer put into a pension and no longer required regular public transport (as I no longer work) I estimate that I would need about £1,500 per month. This is assuming that I still have housing costs such as a mortgage, I still run a car and still go on one annual holiday.
What if you'd paid off your mortgage?
If you've eliminated future housing costs by paying off your mortgage and owning your house in full, firstly well done! I'm a long way off from that point (about 36 years according to my latest mortgage statement). By owning my property would result in total outgoings required to be about £900 per month. This would require a net income of about £7,200 per year.
However, let's bear in that I would need various emergency and sinking funds to build up in case the worst should happen. Furthermore it would be prudent to have a cash buffer each month. I would estimate that I therefore need a next income of about £1,200 to be on the safe side in order to no longer work and assuming that I had no housing costs. This works out at £14,400 per year in net income. This would require a gross income before tax of about £17,000 or £1,400 pre tax per month.
Where does the money come from?
This is the question. In order to build this level of income each month you will either need a serious amount until of assets or to earn a very decent level of passive income or else a combination of the two.
I am currently working on both. At the moment I have built up a passive income worth about £500 per month from a couple of different sources. I must stress that this is money earned from places other than my main job and for minimal effort. Whilst I am still working full time and not planning to retire I put all of this additional income into building up my assets killing two birds with one stone. I've built up my passive income stream and I let that feed my assets.
But what are these assets?
The assets that I'm primarily interested in are individual shares in the stock market and eventually investment property. After buying my first home earlier this year (March) I went to virtually £0 in assets. However, I have since built up my assets to roughly £10,500. Not bad for seven months work!
And what are the passive income streams and how do I build them?
The passive income comes from three places at the moment. The first is making money from tutoring - I know, this isn't so passive as I actually have to put the time and effort in. However, it has helped me to build contacts in order to start passive income stream number two which is a tutoring agency. The final passive income stream has come from selling advertising space on a website. Watch out for a future article on building passive income streams.
How far am I from stopping work?
By my estimate I'm about five years away from generating the £1,400 per month from my passive income alone. I'm probably also about four and a half years away from buying my first investment property. However I don't plan on stopping working any time soon. Watch this space.
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