Passive income and eventual financial freedom..

This one’s for the money nerds….

I’ve started to track our passive income versus our expenses, just to see how we’re doing on our way to Financial Freedom/ Independence. (I’ve tracked it before but never with any consistency as it seemed so far away!) Time seems to move very quickly though and in 35 months time we’ll hopefully be mortgage free, so tracking* it [passive income] can’t be a bad thing.

Our Financial Freedom goal is to have enough passive income from our investments/savings to cover our basic living costs by December 2020. This doesn’t include any pension payments – it’s purely cash an/or investments.

*BASIC EXPENSES

basic costs

- Column 3 assumes no mortgage payment and our expenses being pretty similar to today.

*CURRENT PASSIVE INCOME

current savings

- Figure in box is current passive income – minus mortgage free expenses (£9,326.76 – £760.30) = £8,566.46

The good news is that we’re already earning nearly a months worth of expenses in passive income, but we still have a very long way to go!

Here’s a little chart I made to show potential passive income from investments

passive income targets

Right now we also get passive income via cash back (credit card and buying sites). but I’m assuming this will reduce over time as our spending/buying does.

*Our savings are not increasing dramatically while we payoff our mortgage and so I’ll only be tracking this annually I think.

Do you track your passive income?

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10 Responses to Passive income and eventual financial freedom..

  1. You are so dedicated to reaching your goal! I am cheering you on from the sidelines Laura!

  2. Salis Grano says:

    You are doing absolutely the right thing in your rigorous approach to mortgage payoff and saving, but you should start to invest more widely. If all your savings are cash based, then you cannot really regard the interest as income, since in real terms you will never achieve more than about 0.5% over the long term. You will need some sort of equity vehicle, like a FTSE tracker or ETF, or maybe property rental, in order to fight inflation.

    • Laura says:

      Hi Salis. Thank you for your thoughts. A rental and/or investments are on the way over the next couple of years now that we have our cash (ef) at £20k.

  3. Those are good returns on the ISAs and bonds, especially since the ISAs grow tax-free. Very cool that you are already earning one month’s expenses in investment income!

    • Laura says:

      I shop around every April to get the best rate and then move the money if I have to. The larger ISA is fixed until October and then I’ll move it again. It doesn’t pay to stay in one place anymore.

  4. Hi Laura – I don’t think I have ever stopped to add up the interest alone on our savings but I will be doing now! I definitely want to live where you do as your water rates are much cheaper -we pay £48 a month (not metered) and our council tax is another £10 a month more than yours but we may be in a different band so maybe I shouldn’t compare.

    • Laura says:

      Hi! Water rates £412 pa (fixed) and ct £1,300 pa (Band C). I’m not sure how our water rates compare to other areas and now that we’re an empty nest I’m wondering if a meter would work out any cheaper – in a way I like the fixed amount.

  5. ermine says:

    Nice work and a laser focus on the task in hand. I second SG’s observations on the investment angle. Cash is a terrible ‘investment’ – the ‘interest’ is compensating you partially for the loss in real value due to inflation (which is about 5% so your ISAs are worth about 1% less in real terms than they were last year :(

    I keep my cash emergency fund with NS&I index linked savings which offer a tax-free RPI uplift to try and forestall that slow death of cash. You can’t get them at the moment but you might want to consider them as a home for your emergency fund if and when they open their doors to new business.

    > A rental and/or investments are on the way over the next couple of years now that we have our cash (ef) at £20k.

    a rental would increase your exposure to an asset class that already makes up a large part of your networth – residential property. And one that’s illiquid to boot. Contrary to popular opinion, residential property does not always rise in value in the UK. I know this from personal experience ;)

  6. laura says:

    Hi Ermine and thank you for your thoughts.

    A £20k cash ef is more of a comfort thing (one year expenses) than an investment although thinking about it we could ‘store’ it more efficiently.

    We are starting a S&S ISA next month but we’re torn between that and another property. Eventually we may possibly sell this house and use it to buy two small ish properties for our own use – here and abroad. My husband is only 33 and still has a zest for work (me I’m over it somewhat! ;) so we have a little time to consider our options.

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