We all want to live off interest, especially when we retire. It is possible to live off interest but it requires prior planning and preparation. You need to find out how much money you spend on expenses and then calculate if your wealth or passive income is enough to last you for a prolonged period. You need to consider all your streams of income like investment income and social security to determine if you can live off interest.
In this article, we are going to find out what is it to live off interest, how much money you need to live off interest, and how to go about it.
What Does it Mean to Live Off Interest?
To live off interest means living on passive income. It is a situation whereby you have assets that generate enough money on their own and they can provide you with a monthly income. As such, you don’t have to work on a day-to-day basis to earn an income.
How Much Money to Live Off Interest?
To determine how much money you need to live off interest, first, you need to calculate your expenses. You need to work backward and see how much you spend. List all your expenses and how much you spend on each one of them every month. These necessities include food, health, housing, travel, insurance, entertainment, and any other expense.
Once you have calculated your monthly expenses, you also need to approximate how long you intend to live off interest. With that, then you can determine if your wealth or passive income can allow you to live off interest for that period.
Other factors you need to consider when determining if you can live off interest include social security, retirement savings, and investments. Generally, consider all your streams of income to determine if you can live off interest.
How to Live Off Interest Income
It is possible to live off interest. However, it requires hard work and strategy. This is how you can live off interest.
1. Have Multiple Streams of Income
To live off interest, first, you need to create multiple streams of income and passive income. With a passive income, then you can live off interest. Among the best passive incomes that can help you live off interest include rental income and profit income. So, look for retirement income-generating investments and invest in them.
2. Stick to Budget
To live off interest, then you must be financially disciplined. You need to write a budget, stick to it and live within your means. Failure to live within your means will bring in unplanned expenses that will later disorganize your finances. Spend only on things you have budgeted for. But also, make sure you have an emergency fund to cater for unforeseen expenses.
You need to invest in different investment vehicles like certificates of deposits, treasury bonds, stocks and shares, and annuities. You can live off interest on investment income. The amount of money you will earn from investments will depend on how much money you have invested.
4. Pay Off Your Debts
To live off interest comfortably, you need to first pay off debt. Loans like credit card loans usually have high-interest rates that can take a huge portion of your income. As such, strive to pay off all your debts, and then you can comfortably live off interest.
How Do Millionaires Live Off Interest?
Millionaires can live off interest from their multiple investments. Millionaires have multiple streams of income that help them live off interest. The average millionaire has at least 3 streams of income. These streams of income can include earned income, profit income, interest income, dividend income, rental income, capital gains income, and royalty income.
Can You Live off Interest on a Million Dollars?
If you have a million dollars, then you have a wide range of investment vehicles to invest in. Some of these investment vehicles include high-yield savings accounts, certificates of deposits, and annuities. This is how much you can expect when you invest in either of these:
- High Yield Savings Account. APY of 1%, you will have returns of $51,010
- Certificates of Deposit. With an average interest rate of 0.03%, you can get $19,650.
- Annuities. With an average interest rate of 3%, you can get $75,380.
With these figures, you can look at your expenses and determine if it is possible to live off interest with $1 million dollars.
Also read: Where to deposit millions of dollars?
Summary of How Much Money Do I Need to Live Off Interest
It is possible to live off interest but it requires hard work, persistence, and strategy. You need to develop multiple streams of income and build multiple passive income sources. You also need to increase your savings and contribute to social security. You can consider opening an Individual Retirement Account (IRA) and save for retirement.