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How to generate enough passive income to travel

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How to generate enough passive income to travel

Traveling is a common aspiration among millennials. But most jobs only allow for two weeks of vacation a year, leaving this item stubbornly on the bucket list.

How can you generate enough passive income to travel more often? Read on for our tips on freeing up more time (and money!) for seeing the world.

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Real estate

Building a real estate portfolio is a fantastic way to generate passive income. Through the power of leverage (borrowing other people’s money), you can build a good-sized portfolio in just a few years.

If you want the greatest amount of income from your property, you can manage it yourself. You can paint the walls, hire the plumber, collect the rent, and screen the tenants. But if you are willing to exchange a cut of your profits in order to make your income truly passive, hire a property manager.

With a good property manager, your properties can be managed from afar, making real estate a great way to fund a travel-centric lifestyle. Your property manager takes care of many day-to-day tasks. He or she will be the main point of contact for your tenants (i.e., the property manager—not you—gets those pesky 2 a.m. calls about flooding basements). Fees for a property manager start at about 10 percent of the rent price of the managed properties.

As with any investment, real estate involves risks as well as rewards, particularly if you take out a loan to buy the property. Before you rush out to buy a duplex, do your research on your market. Find a good realtor—one who mainly deals with investors, not just residential home sales. He or she can direct you to profitable neighborhoods, and steer you away from ones you want to avoid.

Use an app like DealCheck or online calculator (like this one) to run projected numbers on the property you are looking to buy. Pad your estimates for taxes, interest, insurance, repairs, vacancies, etc. so you can make sure you are buying a profitable property.

It’s a good idea to speak to other seasoned real estate investors (preferably ones who invest in the same geographic area you want to buy in) before you begin. Talking with someone who has “been there, done that” will help you avoid pitfalls, acquaint you with laws or regulations in your area, and put you in touch with people who will help you on your journey: attorneys, contractors, property managers, etc.

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Become a Financially Independent

While this is hardly an easy, get-rich-quick option, becoming financially independent is a sure-fire way to free up time and cash for a nomadic lifestyle. Of the methods of “passive income” out there, financial independence is the most truly passive—once you get there.

Simply put, financial independence when the returns on your investments are equal to or greater than your expenditures. Your money works hard enough (in the stock market or real estate or other investments) so that you don’t have to work at all. Most people don’t reach this stage of life until retirement, but with dedication and a decent income, you can take the fast track and jump to retirement decades early.

Short of inheriting a windfall, the easiest and most reliable path to financial independence is a high savings rate. The greater percentage of your income you can save, the faster you can get to financial independence.

Let’s take a real life example: Elizabeth is 24 and has a job making $50,000 per year. The average savings rate in the U.S. is about 8%. At that rate, Elizabeth will save $4,000 in her retirement account and spend the remaining $46,000. Assuming her investments will return about 7%, she will have enough money to retire in about 45 years, at age 69.

Now let’s say that Elizabeth is very frugal. Instead of $46,000, she can live on $35,000, bringing her savings rate up to 30%. This will get her to retirement in just 24 years, at age 48. If she can up her savings rate to 50%, she can retire in just 15 years, before she turns 40.

This is obviously an over-simplified example; it doesn’t take into account individual situations like taxes or any extras like raises, a spouse’s income, or money from side hustles. With any or all of those extras, Elizabeth could speed toward early retirement even faster.

By paring down your lifestyle and increasing your savings, you can convert 29 of your working years into time you can spend traveling. That’s almost three decades! As they say, time is money. Literally.

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Geoarbitrage

Who says you have to stop working in order to travel? If you can take advantage of global geoarbitrage, you can have your cake and eat it to.

Geoarbitrage (short for geographic arbitrage) is moving to a different area to capitalize on its low cost of living. Large metropolises are usually high-cost-of-living areas, but they are also the hubs for plentiful, well-paying jobs. If you can work remotely in a low-cost-of-living area for a company based in a large city, you can command a high salary while raising the buying power of your dollars.

This lifehack works well in stateside places like the Midwest and the Deep South. A salary from a company based in New York will go much further in South Dakota of Mississippi, for example. But you can really win at the travel game by playing geoarbitrage on an international scale.

If you work for a U.S.-based employer, your salary will be higher than average for a great many countries in the world. Working from a coffee shop in India or Vietnam is about as easy as working from a coffee shop in the United States, after all.

Although international geoarbitrage is not a truly passive way of generating income, it is more conducive to traveling. By living and working overseas in a country with a low cost of living, your overall expenses are much less and you can see more of the world.

Want to compare costs of living in other places to see if geoarbitrage would work for you? Check here for stateside comparisons and here for international ones.

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Outsource your Business

Just because your business isn’t passive doesn’t mean it can’t be passive to YOU. One way to create passive income is to build a business and have other people do the work for you.

This could be anything from a blog to a laundromat, but online businesses are especially easy to outsource. Dropshipping through Amazon and private websites is a popular business to build, and you can start with very little money. You can hire locals if your business is location based, or you can use websites like Upwork or Guru to find virtual assistants to help you out.

Another variant on outsourcing your business is to sell information products that you create once and can be sold again and again. These are things like eBooks, online courses, printables, digital patterns, or stock photos. Set up a distribution system to manage transactions on your own website or a platform like Etsy, then the robots can sell your products for you! You will still have to take care of customer service, but if you like, you can outsource that element too.

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