Earlier this week, I came up with a new game plan for building up passive income. Something new to set my sights on and while my expected return may be a little high (thanks for some of the valuable comments from readers), it got me motivated again. And boy, did it get me excited. I stayed up late doing the calculations while my wife had turned off the bedroom light.
I don’t mind staying up and working on a fun project. I definitely wasn’t going to be able to sleep when I was this excited. As I related my new goal to my wife, she had a ton of questions and just as much doubt. I tried to explain that it was the best case scenario. In the middle of the conversation, she asked how this would affect our plans to buy a home in the next few years.
I stumbled to find the right answer. Instantly, I was aware that buy buying a home would alter my plan, but I wasn’t sure by how much. I told her that I would find out. Back to the drawing board…
Why Buying a Home Affects Our Passive Income Goal
When thinking about investing aggressively in order to build up a lump sum, from which we can supplement our business income, it’s common sense that the more money we invest now, the faster we will grow (assuming positive returns of course). In other words, if I invest $10,000 every year, I will accumulate wealth much faster than if I were investing only $5,000 each year.
In its most basic form then, it seems that if we were to buy a home, which would be an added expense, it would reduce the amount of money we could invest. This would then slow down our progress. Spending $60,000 on a down payment for a $300,000 house, for example, would tie up a lot of our capital. Talk about delaying our growth. Not to mention the cost of home insurance. Luckily, there are options such as aarp online Auto and Home Insurance that will save you money when you bundle them. .
But buying a home isn’t a complete waste of money. It’s not like we are buying a depreciating asset like a car. Homes hold their value and typically increase in value over time. Buying a house is another great way to build up wealth. In other words, it is just a different investment vehicle. So, while it may delay my goal towards passive income (because it’s not actually bring in money), it is still working towards increasing my net worth.
What is My Goal Anyway? Income or Cash Flow?
Buying a home has been one of my goals for a long time. I see it as a great way to lower your expenses in retirement. By paying off your mortgage before retirement, you can live with significantly lower housing costs than you could if you were renting. Paying rent can definitely take out a huge chunk of the income you have coming in.
Thus, it makes sense to develop this goal of mine. While $8,000 of passive income has a nice ring to it, having a larger cash flow sounds much better. That’s what it’s all about, right? The freedom to do whatever you want.
To bring it all together, I do plan on buying a home. It will delay my passive income goal (unless my business takes off sometime soon), but in the long run, it will allow me to have a larger cash flow and ultimately more financial security.