Warren Buffett said, “If you can’t find a way to make money while you sleep, you’ll work until you die.” In this generation, most millennials want to retire early and live life doing what they love. One way to accomplish this is to invest in free-flowing stocks that provide you with enough passive income to allow you to retire early. The idea is fascinating, and in this article we will show you some techniques you can follow to reach a level where you can live only on stock investments.
The first step is to be frugal.
Before learning how to live off stocks, it is important to understand that this is not going to be an easy task. You can’t afford to spend recklessly and get in the habit of spending as little money as possible. The more you can save from your paycheck, the faster you can contribute to your stocks, which will eventually pay for all of your living expenses. That’s why it’s important to be frugal and spend as little as possible.
The 50-70 percent investment rule
After you’ve minimized your expenses, it’s time to maximize your savings. The 50/70 rule states that, ideally, you should save between 50 and 70 percent of your monthly income after taxes. Will it be easy to set aside 70 percent of your income? Maybe not, but one way to motivate yourself is that after 15 to 20 years of saving, your investment will reach a point where you no longer need to work for life. There are millions of people doing this and sacrificing themselves to buy the latest smartphone or a fancy car, which is a bad decision if you want investment to live off stock investments.
Diversify your stock investments
Do you remember the phrase about not putting all your eggs in one basket? That applies to stock investments as well. Even if a particular company is making a profit, be sure to diversify your portfolio for long-term stability. Focus on long-term goals rather than short-term profits if you really want to live off your stock investments.
Make a proper plan
As simple as it sounds, having a proper plan is important. If you don’t know how much you need to save and you try to invest aimlessly, you will most likely fail. So have a written plan for how much passive income you need each month to truly opt for early retirement. A basic rule of thumb that most experts agree on is that you should have at least 30 times your annual spending in investments before you retire. For example, if you spend $3,000 a month, your annual spending will be around $36,000. So, to live on stock investments, you must have at least (30*36,000) = $108,000 in investments.
Final verdict
It is possible to live entirely on stock investments, but the road will not be easy. You will need a lot of willpower and sincerity to pull it off. But if you feel like giving up, remember the reward of having a source of passive income and never having to work again. How cool is that?