Creating passive income is desired by most, and we usually set a fixed amount of passive income we need or want based on the amount needed for either retirement in later life / or to come out of work in the short term. However, this figure can be reduced by clearing off any current debt you have.
For instance, a £5,000 loan you may have taken out is costing £100 a month, for the next five years (these figures I’m just pulling off the top of my head). It’s added £100 on to the passive income goal you need as it’s an outgoing that needs paying, for at least 5 years. £100 is a lot of money when you’re relating it to passive income, in fact it’s 10% of a £1,000 goal.
An ideal situation would be to pay off any current debts you have – at least any that require large monthly payments or worst still high interest loans. You’re not only going to save money, from not paying the interest on the loans – but lets consider your monthly passive income goal is £1,000. Reducing this single outgoing has basically just accounted for 10% of your goal, and there is not many opportunities in life that can lower your outgoings by 10%. On top of this, it’s probably saved you over £1,000 in occuring interest!
I appreciate it’s not realistic for many to pay off large debts easily. However, I’d really suggest that any passive income you do make, you should build up and pay off debts first, or at least over pay payments.
It’s easy for us as consumers to fall into the trap of taking on credit, sometimes even when it’s not particularly needed, just because you can.
The creditors have a lot to answer to, but they run a business after all, and unfortunately it’s not going to stop any time soon.
There are times when credit is useful for us to take, such as buying property or investments that bring us more money than the credit amount is worth including interest, but any credit should not be taken on lightly.
What I am referring to is, don’t just take a £5,000 loan because you want an all inclusive trip to Cancun – take your time, save and be debt free. You won’t be put under the added stress trying to pay for the monthly instalments when you get back from your perfect holiday. You’ll also feel a lot more accomplished paying for something from your hard earned savings, and you will appreciate it a lot more.
For me personally, debt is a way that we’re all controlled, it’s modern day slavery at the very least. If we never had debt, and we all owned everything outright, then we’d be happier and live more fulfilling lives, instead of being a slave to consumerism.
In many countries, and even many European countries. Adults are deciding to live with their parents until their 30’s or 40’s, until they have saved enough to buy their own homes outright. It’s one way to say no to debt!
Okay, I know what you’re thinking ‘who wants to stay with their parents until 40’, and yes this wouldn’t work for everyone. It’s an interesting concept though, especially if your parents have a large enough house but admittedly it’s not going to be everyones cup of tea.
I think the moral of the post is that keep you debts to a minimum, and your goal of living solely on passive income can be that step closer.