Check out 4 steps to living on income and start programming today!

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Have you ever thought about living on income and no longer depending on salary to pay for your expenses? This is the great objective – and challenge – of most people living in UK, USA, Canada, Germany and other places.

Living on income means having money generated from the income of an estate. This income is called  passive income : an amount you earn regularly, without having to work.

But did you know that you don’t have to have a lot of money to live on income? With a little focus, discipline and financial planning, it is possible to achieve this goal without giving up other goals.

To help you on this journey, we have prepared a list of the

4 essential steps to start living on income

1. Organize your budget

The first step to build wealth and, later, live off the interest on financial investments is to organize the budget. For that, you must learn to plan your expenses every month.

So, before receiving the salary you need to make a list of all your fixed and variable expenses.

7 steps to setting your goals and achieving financial success

Fixed expenses are those that happen every month and always have approximately the same amount. Some examples are rent and water and electricity bills.

Variable expenses occur every month, but not always in the same amount, such as, for example, a dinner in a restaurant, leisure expenses, aesthetics, clothes and so on.

Extra expenses are unpredictable. An emergency at home or an unexpected expense are the main cases.

And the additional expenses are the ones that don’t have to happen all the time, like a birthday present for a friend, for example.

The ideal is to keep these expenses always at the tip of the pencil, spreadsheet, application or any other financial control tool. This prevents you from losing control of your finances.

With the accounts organized, it’s time to set goals for your spending. After all, a great source of lack of control – and even indebtedness – is not setting a limit on your expenses.

By doing all this, you increase control over your financial life, and there will no longer be that excuse of not knowing where your salary went at the end of the month.

2. Save money for the future

To live on income you need to accumulate resources. So the basic rule is to spend less than you earn.

Ideally, you should start now to make an effort to save as much money as possible each month. To give you an idea, there are people who save up to 50% of their monthly income.

Why is this interesting? In fact, the more money you can invest, the sooner you will achieve financial independence thanks to the multiplier power of compound interest.

Thus, those who start saving at age 20 have more time to save than those who only start at 30, for example. But whatever your age, don’t put off what you can do today. After all, it’s better to have a small amount saved than nothing at all.

Initially, you can save money to form an emergency reserve, and with it you can handle any difficulties in your finances — such as paying for a flat tire, buying medicine, overcoming a period of unemployment, etc. Overall, it is recommended to have 6 months to a year of salary for this reserve.

After doing that, it’s time to invest to live off your income. We will deal with this later.

3. Have clear financial goals

Financial independence means having enough money to maintain your standard of living. Still, you must agree that this concept is somewhat relative, isn’t it? After all, the amount sufficient for one person may be quite different from that required by another.

For this reason, before thinking about living on an income, you should list what your financial goals are and establish the standard of living you want to have in the future. With this, you get an idea of ​​how much passive income you will need (without working) per month, in addition to the amount that must be added to allow this flow of money.

The advantage of defining your own financial goals is that they help with the discipline of saving, after all, you know that the temporary sacrifice of saving will serve to achieve a greater and more lasting good.

Making a comparison, it’s as if you first had to build a car and, once that task was completed, you could drive it wherever you wanted.

4. Invest according to your profile

Just collecting money won’t make you live on income, because stagnant money loses its purchasing power due to the effect of inflation. So, to protect your capital and make it grow, you need to invest.

However, before making financial investments, you must find out what your risk tolerance profile is. As a rule, there are three profiles: conservative, moderate and aggressive. For each of them there are more suitable assets in the financial market.

In this sense, while fixed income is more recommended for those who do not want temporary losses and want to preserve capital, variable income is indicated for those who value profitability.

The benefit of investing according to the risk profile is not exposing yourself to situations that the person does not like to deal with, such as stress due to losses or below-average returns.

Beforehand, know that there is no such thing as a high-return, low-risk investment, so you should weigh these two factors when choosing your investments.

Whatever your choices, keep in mind that investing to reap the results in the long term is a prudent attitude, as it gives the necessary time for the interest on interest to work and can multiply the accumulated capital.

Now that you know the 4 steps to living on income, how about learning more about finances and preparing for a peaceful future? So know how to choose the best investments for retirement!

 

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