Earning

Passive income is helping me achieve my goal of retiring at 40: Here's my best advice

How to FIRE co-founder Samantha Hawrylack shares how passive income is helping her retire early.

How to FIRE co-founders John and Samantha Hawrylack.
Courtesy Samantha Hawrylack

Over the course of four years, I paid off $60,000 in debt and turned my side hustle, my consulting business, into a full-time six figure career. My husband John and I also launched a blog called How To FIRE to share our money story and help people who had been in the same boat. 

We've learned that the path to financial independence isn't only about sticking to a budget each month. For us, the way we stay motivated to meet our money goal is remembering our "why," how important it is for us to have freedom and flexibility in our lives. 

As part of our plan for reaching FIRE, we began by paying off student loans and auto debt and building up an emergency fund. After we had the basics covered, we focused on maxing retirement accounts and our health savings account (HSA).

But while all these actions are important for our financial health, two years ago we started to think about what else we could do to speed up the process. We decided to research passive income streams — money you can earn with minimal effort or maintenance — that could decrease the number of years it would take us to reach our goal of financial independence by the time we are 40. 

Here is what we've learned about passive income, and how we plan to use it to build our retirement income and generational wealth for our family. 

Putting in the time upfront can pay off 

For the first year and a half of the blog, we invested thousands of hours and thousands of dollars into How To FIRE before we started earning any real money. We spent more on it than we made. But we hustled, spending every night and weekend on growing the blog. Though we didn't see our friends and family as much as we would have liked, we knew that the work would pay off in the long run. 

While there are aspects of the blog that do require a lot of time and effort, like writing and promotion, it has also been a source of passive income, through affiliate marketing and ad revenue. In September 2020, we started to make approximately $1,200 from ad revenue and $300 from affiliate revenue each month. The goal is to keep publishing content each week in hopes that it grows more substantial each year.

We purchased our domain for about $12 a year, as well as hosting at approximately $3 a month. There are a number of free and affordable blogging platforms, but we opted to use WordPress. This is where the start-up costs of a blog can fluctuate based on the functionality you want on your site. As the site grew, we expanded the software and plug-ins we use. For instance, we now use ConvertKit for email marketing software and Lasso for affiliate marketing.

It also takes Google a while to understand what your site is about and rank the article accordingly. You also have to factor in learning high-income skills like search engine optimization (SEO). However, once your articles rank, ad revenue and affiliate income can start coming in.

For instance, if a blog receives 2,000 sessions per day, and their RPM is $30, the owner would make $60 per day or $1,800 per month. If you add that to conversions made on affiliate products, you could add several hundred or even thousands of additional dollars to that. 

We're excited about how we can continue to build this passive income stream and put it towards our early retirement plan.

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Real estate investment as a passive income strategy

Over the next few years, our other passive income goal is to invest in real estate. We currently own a townhome and our plan is to move into a single-family home in 2022 and buy our first rental property in 2023.

To prepare, we have started a house fund in a high-yield savings account and deposit everything that is left over into that account after contributing to our retirement accounts each month. Our aim is to use that money to pay a 20% down payment on a single family home and use the remaining savings to invest in rental properties.

In our research, we've learned a lot about industry, and terms like the 1% rule, which says that monthly rental income should be greater than or equal to 1% of the purchase price. A property and repairs totaling $200,000 should rent for $2,000 per month or more, for example, and we are keeping that rule in mind as we look into purchasing both short and long-term rental properties.

We want to pursue real estate because it will further diversify our portfolio, making us less reliant on the stock market. There is also the opportunity for perks in cash flow, appreciation, and tax deductions. Utilizing real estate investing also allows us to protect ourselves from inflation as home values and rent usually rise alongside inflation.

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Lead with your interests and passions 

My best advice if you're considering pursuing a passive income stream is to weigh three factors in your decision: time, investment, and interests. Consider how the potential opportunity costs and profit could impact your financial plans. 

Blogging and real estate investing are both passive income streams that take time to build up. We researched and considered other possible passive income streams, like launching an Amazon fulfillment and drop shipping business, but it was a saturated market and it just wasn't resonating with us the way these other opportunities did. 

Our view of passive income is that you have to put in the effort upfront to collect on the "passive" part of it later on. So, make sure you are choosing something that you enjoy learning about and working on. We know that a combination of patience and passion will help make our long-term financial goals a reality.

Samantha Hawrylack is a personal finance expert, full-time entrepreneur, and co-founder of How To FIRE. She has been featured in publications like Forbes, Grow, MSN, Yahoo! Finance, and Fox Business. She's passionate about helping others reach the freedom and flexibility they crave through the FIRE movement. You can find her on Twitter at @HowToFIRE.

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