Earn a Passive Residual Income when you Pay Yourself First
How can I earn a Passive Residual Income when I pay myself first?
Paying yourself first in order to earn a passive residual income is one of the cornerstone concepts of wealth creation and financial freedom. Paying yourself first means that you should subtract a set percentage from your income each week (automatically) and set it aside for your passive residual income businesses or investment.
Paying yourself first means that you should set aside 10 to 20% of your income each week before you pay your bills, before you dine out at nice restaurants, before you buy that new tech toy. With online banking it is extremely easy to set this up through automated deductions weekly (or whenever your income hits your account).
So where should you send this 10-20% of your income?
There are a number of investment vehicles that you could transfer this money into including managed funds however the best option for you will vary and I encourage you to seek professional advice (financial planner) to determine the right investment vehicle for you. In some countries, governments offer co-contributions for money that you put into your superannuation (Australia) or 401K (America) so depending on your circumstances this may be the best option as you will get government money for free! The rate of return of Superannuation/401K funds will vary, but an estimate based on previous years performance varies between 8 and 12% per year.
How much should I put away, 10 or 20%?
The amount that you can invest in your passive income future will depend on your circumstances, but using a hypothetical example, lets assume that your income is $52,000 after tax. So if we were to invest on a weekly basis then our weekly income would be $1,000 and if we wanted to invest 10% each week then we would invest $100 each week. If we invested this money into an investment vehicle that yielded on average 10% interest per year (0.2% interest per week) then using the power of compounding interest we can calculate our investment return over a number of weeks and years as outlined in the table below:
Lets say that we still earn the same income ($52,000 after tax) and we invest 20% of our income per week ($200) into our investment vehicle which yields the same rate of return of 10% per year (0.2% interest per week). Using the power of compounding interest we can see our investment return below.
Please note that these are hypothetical examples and the final outcome of your investment will vary based on a number of variables including but not limited to; the rate of return of the investment vehicle, and fees that may be charged.
If you are interested in other passive residual income investment ideas then have a look at this page http://www.passiveresidualincomefreedom.com/