Passive Income vs. Active Income, Which is the fastest way to financial freedom?
Hey what’s up guys. Davey Pockets here man of the financial frontier.
Today we are going to discuss Passive Income vs. Active Income
I want to start off by affirming that earning active income is always a great idea. Anytime you earn active income you are putting yourself one step closer to retiring and having financial freedom.
But is your saving active income the fastest way to financial freedom?
The short answer is NO. And let’s take a look at why that is.
First the rule of 300. The rule of 300 says however much your expenses are per month multiply by 300 and that’s how much you’ll need to retire.
Monthly Expenses 0. 0 x300 = 0 to retire
Monthly Expense 2,000. 0×2,000 = 600,000 to retire
Monthly Expenses 4,000. 0 x4,000 = 1.2 million to retire
Monthly Expenses 6,000. 0x 6,000 = 1.8million to retire
To get more specific let’s zoom in on the 4,000 a month example.
How long would it take you to earn and save 1.2mil?
How long would it take you to earn 4k in passive income?
I don’t have an exact number for each. Results will vary but here’s my own experience that you may benefit from.
I went to work at the tender age of 15. Have been in the workforce for 13 years and have nowhere near 1.2mil in savings. Despite working hard, saving like its a depression and going a full calendar year of working 3 jobs (2 full time 1 part time) my net worth never got close to the 1.2 million let’s retire now range.
I will say my net worth did go up significantly, but it was only a drop in the bucket compared to 1.2mil. Only got to around the 200,000 range or 10% of the way there.
Starting in Nov of 2013 I started to try something different.
The definition of insanity is doing the same thing and expecting different results. Beating my head into a brick wall “harder” wasn’t going to get me to 1.2 million any faster. I needed to find a different away AROUND the wall.
So Nov. 2013 I started earning my first passive income ever. I started small at just $550 per month. Currently I make $2075 per month in passive income and its only May 2014.
In just 6 months I am 50% aka half way to retirement and financial freedom by simply building my passive income portfolio!
So which is better? 13 years of hard work and saving to get 10% to my goal? Or 6 months of well easy work to get 50% to get to the same goal?
I’ll leave you with this thought- passive income is not for everyone and its certainly not an excuse to ever stop saving. However in terms of financial freedom and retirement I have found it to be a much faster, easier path and think you will too!
Have a story of passive income or saving your active income? Share in the comments! Thank you.