Yes this was a small bit of interest that my savings were generating each month just for sitting in my bank.
In my head, this extra $175 or so a month translated to “1 free weekend out a month”, “1 free carton a week”, or “1 free week rent per month”.
This is where I had my ‘aha’ moment.
I knew my bank account wasn’t returning very much relative to some other investments (it was just over 3% p.a. at the time). If I put this money into something that gave better returns, instead of covering 25% of my rent for the month, maybe it could cover all of my rent.
I remember calling up my mate excitedly and telling him that I could put all my money into a certain investment returning 9.5% p.a. and essentially use the income from that to pay off a brand new $33,000 car over 5 years - yes this is coming from the guy who disdains spending money on brand new cars. I'm glad I didn't do it, but this was the moment the term 'passive income' became real for me.
So I started learning about investments again. This time with a bit more tact. Instead of doubling down on ‘hot stocks’, I learnt to spread my risk across different shares and asset classes.
I learnt about asset allocation, the basics metrics by which you evaluate a company, alternative investments like peer to peer loans and precious metals. I used real estate investment trusts (REITs) to invest in real estate without actually buying a house. I learnt technical analysis and how to read a share price chart.
I also read (and still do) about the markets on a daily basis.
These were the obsessions I pursued in my free time – how can I earn more with my money.
A nice side effect of all this obsession was that the more I learnt, the more money I wanted to be available to put into investments. This lead to me doing a budget, working out where I actually spend my money and how much I need to live off. It also helped me identify and eliminate unnecessary expenses. My partner also helps with this one; she is more mindful on spending than I am.
This brings me to where I am at now.
At 27 years old, I should be able to retire by the time I’m 38 (around 2028) – give or take a bit for fudge factor. Our wedding this year for example, may set this back a few months.
So while the retirement is still a while away, the wealth I am building now is very real. I currently earn about $10,000 in passive income per year ($833 per month on average) which is enough to cover about a third of my yearly living expenses. This is on top of capital gains which is a nice side bonus.