$10k Invested = $30/mo Of Passive Income… Forever.

$10,000 can buy you a decent used car. It can buy you a nice furniture set, a decent Rolex, a nice vacation for 4 people or it could pay for 1/4th of a kitchen renovation. It can pay for half of a sex-change operation, bail money for a DUI or a shit-load of lottery tickets.

If you saved the $10k instead of spending it then for every $10,000 you save and invest you lower your bills by somewhere around $30/mo. If your basic monthly bills are $3,000 then you would need a touch under $1,000,000 saved & invested in order to pay for your bills. $10,000 invested will generate an income of somewhere around $400/yr for many, many years. The nerds who have tested this ratio stand behind this 4%-rule when it comes to the broad index fund market. In bull markets that same $10,000 will generate $50/mo and in bear markets it might generate a little less than $30/mo.

If you foresee a paid off home in the near future, no student loan debt and just basic food and utilities expenses then your overhead might be somewhere around $2,000 or perhaps even lower. The first $10,000 you invest will pay for 2 cell phones in your household (I pay $14/mo for mine). Then the next $10,000 should cover electricity or water every month. The next $20,000 will cover your car insurance…. or you might get rid of your car and that $60 will now go towards your home maintenance budget. You would keep going until you have enough to cover whatever your monthly expenses are.

Now, don’t stress yourself out with your ‘current’ expenses being higher than your ‘basic’ expenses. Your goal in early retirement is to replace your basic expenses. If I worked in an urgent care without imaging or labs I could still manage patients, no big deal really. Same holds true when you ‘retire early’… you know you no longer have to generate income from a job in order to cover basic living expenses. You can still enjoy free parks, walking in your beautiful neighborhood, free books and internet from the library and even free movies from OverDrive and Hoopla websites that link to your library.

I am active on a lot of online forums and there is a lot of stupid talk even from intelligent personal finance aficionados regarding ‘adequate passive income’. Sure, you can create enough to cover your socializing, dining out, traveling, buying a new car, upgrading your home etc but then you might as well wait until age 60 for that unless of course you’re a big balla’ netting half a million a year.

My advice to you is aim for covering your basic expenses. You likely will still work in some fashion, you will generate income one way or another. I’ve talked about this in the past… maybe starting a business, maybe moonlighting, maybe consulting. That extra income can be money you can add to your stash or money you can spend on your extracurricular activities.