Start Early

During my first trip to Bali, Indonesia, I had chosen to stay in a private villa. It was the one trip that I will never forget. Sitting on the day bed which overlooks the pool, I was enjoying the breeze and reading my book when the thought of wanting to retire early and yet able to enjoy life. To be able to do that, I know that I will have to build a passive income so that I can be financially free.

Investing for passive income takes time from seeding to reaping the fruits of success. Take a look at how long it will take to build the passive income and why it is important to start early.

Investor Monkey - Bali villa

During my first trip to Bali, Indonesia, I had chosen to stay in a private villa. It was the one trip that I will never forget. Sitting on the day bed which overlooks the pool, I was enjoying the breeze and reading my book when the thought of wanting to retire early and yet able to enjoy life. To be able to do that, I know that I will have to build a passive income so that I can be financially free.

Back from my trip, I was looking up on the many ways people had successfully built their passive income. One commonality between these people is that they took approximately 20 years to build this income that they deemed as passive.

Starting Early

Looking ahead, if I were to use 20 years to build this passive income, I would only be able to retire in 2035 and I would be 55. Retiring then would be considered early by many but I will always regret not starting my investments early when I just started working around 10 years ago.

Doing the Math

Assuming that the stock we would like to invest in has a dividend yield of 4% and grows its dividends by 8% annually whose price rises 1% annually. Dividends distributed will be reinvested annually. An initial investment of $6,000.00 and topping up $6,000.00 annually to the portfolio will generate a 7.51% dividend yield in 10 years, amounting to $4,958.90 annually. The amount increases to $37.496.87 on the 20th year.

Year Total Dividends Dividend Yield
5 $1,343.57 3.73%
10 $4,598.90 7.51%
15 $13,790.36 14.36%
20 $37,496.87 29.76%

The dividends distributed will equate to $3,124.74 monthly which should be sufficient, as passive income, for most of us to enjoy the financial freedom that we desire.

Bottom Line

Even though 20 years may not be a very long time, having to reap the fruits of your success only 20 years from the day when you start investing can sound very far fetched. Why don’t we set our targets, start investing today and enjoy our life living off our passive income in 2035?

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