13 Jul Passive Income: How Much Passive Income Do I Need To Retire?
Make money while you sleep. For some that phrase is just a dream, others a goal, and there are even some people who are in fact making money while they sleep.
If you’re an entrepreneur, you’ve heard the term passive income before, and that is very accurately described as revenue generated without active participation needed.
I’ve been obsessed with passive income since the summer of 2015, when I was staying at my Uncle’s house in Dallas, TX. He was nice enough to let me stay with him while I was shadowing him at his office (he’s a doctor).
During the day, we would be seeing patients together, spending time together with family, etc., but at night when everyone else would go to sleep I would stay up and work. The idea of passive income had planted itself deep into my subconscious.
“You mean its possible to make money without having to be actively working?” Yes! Well kind of…
…in order for the income to become passive, one must be actively putting in work beforehand to build RGAs (revenue generating assets) like an ebook, investment, etc.
ANYWAYS! The dream started taking shape at this moment of realization. What if the income that was being generated passively was greater than all of my expenses? Is that freedom? Is that even possible?
The answer to the last two questions is a resounding YES!! Not only is building more passive income than expenses complete freedom and 137% within reach, but for a lot of entrepreneurs it is the ultimate goal.
This sounds great in theory, but let’s get practical and figure this out with some basic math.
According to a study by the Bureau of Labor Statistics, the average American household living expenses are $55,978.46
For your convenience, some of these household expenses are:
- Computer & Internet
- Housing Supplies
- Personal Care
- Personal Insurance & Pensions
- Telephone Services
- Trash & Related Services
- Utilities, Fuels & Public Services
- Water & Related Services
Again, if you want to see the full detailed report, click here.
If the average American household income is roughly $56,000, then to be able to “retire” with passive income, we need to build an income greater than $56,000!
To be fair, this calculation assumes that we are okay with the American average. If your taste is a bit more extravagant, then you need to take your specific situation into account. However, the remainder of this text will be dedicated to calculating exactly how to build that income, and will still be useful in your own budgeting calculations.
To make this simpler, let’s figure out what we need to make per month to retire with passive income by dividing our $56,000 target by 12. (56,000/12) = $4,667 per month needed to retire.
Now that we have our target income per month, let’s figure out how many items of various prices we have to sell to hit our goal of $4,667 per month or $56,000 per year.
- Low Ticket Items (ebooks, keychains, etc) Sold Per Month
- $0.99 = 4,714 items
- $1.99 = 2,345 items
- $2.99 = 1,561 items
- $3.99 = 1,170 items
- $4.99 = 935 items
- $5.99 = 779 items
- $6.99 = 668 items
- $7.99 = 584 items
- $8.99 = 519 items
- $9.99 = 467 items
- Medium Ticket Items (lower end courses, clothing, etc)
- $19.99 = 233 items
- $29.99 = 155 items
- $39.99 = 117 items
- $49.99 = 94 items
- $59.99 = 78 items
- $69.99 = 67 items
- $79.99 = 58 items
- $89.99 = 52 items
- $99.99 = 47 items
- High Ticket Items (higher end courses, electronics, etc)
- $250 = 19 items
- $500 = 10 items
- $750 = 7 items
- $1,000 = 5 items
- $2,000 = 3 items
- $2,500 = 2 items
- $5,000+ = 1 item
Okay! Now that we’ve figured out the various pricing points and required amount of sales at each point to hit our goal of retirement, the only thing left to do is decide on a course of action and execute…right?
Yes! It is that simple! However, before we talk about the biggest obstacle, execution, let’s discuss the different pricing points and the pros and cons of each.
As you can tell, there is no “right” way to go about building passive income. In fact, there are so many ways to generate revenue passively that it can make your head spin.
Here’s the secret – it really doesn’t matter which route you choose to go between low, medium or high. As long as you choose a path and stick with it, you will be able to find success in time.
What a lot of people (I’m guilty of this too) do that hinders their revenue growth is to keep jumping from venture to venture, business to business, model to model, etc. The people that are the most successful, like Mark Zuckerberg for example, stick with one thing until they are absolutely crushing it before moving onto another.
If Zuckerberg had been dabbling in other ventures while building Facebook, he would not have built the behemoth to what it is today and acquired the near $62 billion that he has as of July 4th, 2017.
A more passive income driven example, Grant Cardone, has built an estimated $350 million real estate portfolio with around 4,000 multifamily units. With each unit trickling cash into his pockets every month, you’d be correct in assuming that it takes a massive amount of his focus and attention.
Both of these entrepreneurs figured out that it wasn’t about which path they chose, the most important thing was that’s they chose a single route and figured out how to execute over and over again until they became successful.
That should be the biggest takeaway of this text – it does NOT matter how you choose to build wealth. What matters is that you see it through until the end.
Now I’m not saying to do something you hate. In fact, that is the exact opposite of what I’m saying. The whole point of building passive income is to free yourself up to do whatever it is that you want. What I’m saying is that you can become financially free many different ways as long as you stick to one path for an extended period of time!
How much passive income does it take to retire? The answer depends on how much you need to live comfortably based on your lifestyle. It also depends on how you want to build your revenue streams and how truly “passive” you want the income to be.
The only thing I can say for sure is that you absolutely have the power to retire by building passive income. If you’re starting from scratch and dedicate yourself to a craft, working diligently every single day, you could probably build enough passive income within 12-18 months to live off of completely.
If, on the other hand, you have bills to pay and need to stay at your job and build passive income as a side hustle, then it may take you a little bit longer. There is no one path and definitely not a “right” way to get there.
I hope this post has shed some light on the subject of retiring on passive income!
Let’s Build a Better World Together!