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What is Passive Income: Putting Passive Income in Perspective

**Disclaimer: This post does not take taxes into consideration”

I’ve said it before, but I’ll say it again…passive income is the bomb. And I think people tend to underestimate its power.

What is Passive Income?

Passive income is income that you make with little time and effort. It can require a lot to get started but not much to maintain. Examples of this include money made from your e-book sales, your website ads, a rental property you own, or sales from your online dropshipping store that are automatically fulfilled. In these cases, you do not work for money. Money works for you!

Passive income also allows you to be location independent. You could be selling your digital downloads while you’re tanning on a beach in Hawaii sipping away at a pina colada. This method makes money your bitch rather than the other way around. Yup. THE DREAM!

Nomad

I’d like to dive into why even just a teensy bit of sustainable passive income can be more effective than a sizable one-time sum of money. And I’d like to show how doable it is as well. So let’s get to it…

Putting Passive Income in Perspective

In my last progress report, I had hit the $350/month passive income milestone. I can’t guarantee I will keep this up each month as passive income always wavers in its amounts. However, I’m going to try to paint a picture of how this income can result in a large nest egg!

Let’s pretend like my $350/month is sustained. Calculating how much this amount would pan out over time:

  • In 1 year, $350 x 12 months = $4,200
  • In 5 years, $350 x 12 months x 5 years = $21,000
  • In 10 years, $350 x 12 months x 10 years = $42,000
  • In 15 years, $350 x 12 months x 15 years = $63,000
  • $350 x 12 months x 30 years = $126,000 (WOW!)

Imagine how much these amounts would increase the more you kept working on your passive income pursuits. Hit $700 a month, and your $126k already grows into $252k.

What Can You Purchase with Your Passive Income Nest Egg?

With a passive income amount of a mere $350/month, you’d be able to pay for not just the down payment, but for the actual price of a home in many countries (in 15-30 years). Just hover your mouse over this heat map of homes in America. Tons of homes are in the $126k and under range.

Don’t want a home in America? Each European country I have visited longer term (around a month) had an abundance of homes in the $30k-100k range (Greece, Romania, Portugal).

Average Living Costs Around the World

Maybe you aren’t planning to buy a house with that nest egg. Instead, a wonderful option would be to fully cover your living expenses with your passive income. It sounds impossible, especially in places like Silicon Valley or New York where rent alone can average around $2,000-$3,000 a month. But when viewing the range of living expenses around the world, you can see that this is completely achievable. Technology has provided so many opportunities to earn hundreds, if not tens of thousands of dollars via the internet (which I hope to show you with this blog). It can be a smart strategy to use geographical arbitrage to buy yourself time and bootstrap your online businesses.

Here are some examples where this is possible:

Based on my nomadic experience so far, I’ve found the places I’ve stayed in longer term have quite affordable rent prices. I used AirBnB and here were my rates:

  • Athens rent: $405 for 40 days ($10.13 per day – private room)
  • Bucharest rent: $692 for 42 days ($16.48 per day – private apartment)
  • Lisbon rent: $559 for 36 days ($15.53 per day – private room)
  • Seoul rent: $463 for 29 days ($15.97 per day – private room)

seoul

Hongdae in Seoul

Of course, AirBnBs are generally used for profit. So if you’re actually staying longer, you can use local resources to find cheaper rates. From further research and speaking with locals, I’ve found Athens, Lisbon, Porto, and Bucharest rent to average around $200-400/month. I believe Seoul rent prices a bit higher, around $300-500/month. But these figures prove that my passive income earnings can definitely cover living expenses as long as I keep working on it.

With my $350/month achievement, I can afford accommodations in all of the cities I had stayed in during this nomadic experience.

Aside from rent, you’ve got to live though, right? This is why tons of nomads flock over to Thailand, Vietnam, and other areas in Southeast Asia. Digital nomads have proven that living expenses including food, rent, transportation, entertainment, and miscellaneous costs can be extremely low depending on where you are situated. And many have demonstrated that your quality of life doesn’t have to degrade, so you get to lower your expenses without sacrificing happiness!

thailand

Here are some examples from bloggers about living expenses in common digital nomad spots:

Chiang Mai, Thailand:

Ho Chi Minh, Vietnam:

Aside from Southeast Asia, this Times article provides info on some of the cheapest countries to live (including rent and living):

  • Colombia – $490/month
  • Moldova – $530/month
  • Kosovo – $600/month
  • Asunción, Paraguay – $610/month
  • Cape Town – $680/month
  • Sarajevo – $600-700/month
  • Morocco – $750/month
  • Peru – $917/month

Average Wages Per Month

While nomadic, learning about the average wages of locals gave me a lot of perspective. It was eye-opening, and made me feel privileged and slightly guilty…I would like to display some of these figures here, so you can understand that what can seem to be an insignificant amount of passive income can equate to a regular salary in other countries.

For reference here were wages that some locals told me about…

  • Athens, Greece: 600 – 1000 Euros/month as a waiter, IT specialist, or bartender
  • Bucharest, Romania: 1000 Euros/month as a software engineer
  • Lisbon, Portugal: 600 – 700 Euros/month as a lifeguard or bartender

porto portugal

Porto, Portugal

Below are some average wages around Europe AFTER taxes, based on Wikipedia:

  • Ukraine: 152 Euros/month
  • Romania: 466 Euros/month
  • Montenegro: 501 Euros/month
  • Lithuania: 601 Euros/month
  • Poland: 693 Euros/month
  • Greece: 947 Euros/month
  • Portugal: 984 Euros/month

Breaking Down the Ease of Building Passive Income

Let’s remove geographical arbitrage out of the question. Replacing a significant salary with passive income may seem quite hard. But I wanted to dive into the numbers to see exactly HOW difficult it really is.

I’ve realized dissecting the ease of building passive income is like taking a goal and breaking it down into smaller action steps. When looking at ultimate objectives things will seem dauntingly impossible, but when you look at the smaller milestones you’ll realize things aren’t as bad as they seem.

Let’s analyze a $60,000/year salary. The year objective sounds extremely difficult with online pursuits. But if we break this down further…

  • $60,000 salary divided by 12 = earn $5k a month.
    • $5,000 divided by 30 = $166.67 a day
      • $166.67 divided by 30 (assuming you can make a $30 profit from each sale of a product) = Sell 5-6 products a day.

When you break this down it doesn’t seem as daunting. Selling 5-6 products daily that generate $30 profit each = NOT unachievable.

Let’s try another situation. As you can see from previous sections, a $1,000/month passive income allows you to live comfortably in cities like Chiang Mai and Ho Chi Minh. So let’s break this first step down:

  • $1,000 divided by 30 = earn $33.33 a day
    • $33.33 divided by 17 (assuming you can make a $17 profit from each sale of a product) = sell 2 products a day.
    • OR $33.33 divided by 10 = sell 3-4 products a day.

Selling 2 products a day is doable, wouldn’t you agree?!

If you are creating a site with a monthly recurring service fee or membership fee, even better. Having a coding background would be amazing for this as you can continue to churn out useful services (and charge monthly).

A $100k/year salary is quite attainable with this method:

  • $100,000 divided by 12 = $8333.33 per month
    • $8333.33 divided by $100 ($100 monthly recurring fee) = 83-84 signed up users
    • OR, $8,333.33 divided by $50 = 166-167 signed up users

With monthly recurring fees, you just need 80-170 people believing in your service. You don’t need a huge following of tens of thousands to be a successful startup. When you’re working on a project yourself with 0 funding, it can be as simple as getting 100 users and calling it a day.

Conclusion

People know I’m crazy about financial/location independence and passive income…so I wanted to write this post to explain my enthusiasm! Think of all the time it can free up. When money isn’t an issue, you’re left with tons of time to cultivate your relationships and pursue projects you love. You’re also able to move around the world without worry.

before i die sharon

And the great thing about passive income is you can keep building on it – a $1,000/month passive income doesn’t have to be the end goal if you don’t want it to be. Once you attain a sustainable passive stream, the only direction to move is upwards.

I’m not saying it is going to be easy. But I’m saying it is all achievable. I do believe your background, location, and financial situation can greatly impact your ability to create passive income. However I’ve also met people from all around the world pursuing the same financial independence, even in places with low average wages. So I do believe it is possible from all ends of the spectrum, though it can be hard.

Anyway let me know what you think in the comments, if I’m crazy or not. 😛

putting passive income in perspective

5 Comments

  1. Joe Joe

    Where do you stay while in HK? Just wondering how you budget at a high cost place like HK.

    • digitalnomadquest digitalnomadquest

      Hi Joe, haha I got lucky. I’m around North Point/Fortress Hill area. My parents have a place here so it has been easy living. It is kind of a resting spot for 2 months until I go to Thailand in January. Thanks for your comment!

      • Joe Joe

        That’s great for you! I go through HK a lot, was last there about 2 weeks ago en route toSingapore. Stayed at Eaton Hotel for a week, currently listed at $284 a night for a 183 sq ft room!

        • digitalnomadquest digitalnomadquest

          Wow! Hmm, I’ve seen AirBnBs for about $1,000 a month I feel? $284/night is crazy!

          • Max Moy-Borgen Max Moy-Borgen

            That does seem really expensive. When I was there (albeit 8 years ago) I was able to find a hostel for <$50/night and I thought that was expensive… Looks like you can still find them for that price today. However, you have to be OK with staying in a hostel (shared sleeping quarters) in bunk beds. I don't know if the privacy is worth paying 7x+ the cost, but if you can afford it then whatever floats your boat.

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