It’s a question most of us hate to think about because the answer is so depressing. For anyone younger than 55, a million dollars is not enough to retire on unless you are a super whiz when it comes to investing. How will you retire? Have you saved anything? Or are you still doing your best just to get out of credit card debt?
If you haven’t thought much on the subject, now is the time. Read this article on how to make a million dollars first, just to get the ball rolling.
If you’re like me, the more you think about retirement and the ridiculous amount of money you will need, your brain overloads and you start feeling helpless. Then you choose to either obsess about making money or you push the thoughts as far from you as possible. You might even do so with the self-righteous stance of I’m too good of a person to obsess over money. Well, congratulations. You are the world’s most righteous person.
For those of you who are honest with yourselves, you’ll admit that you don’t know how to get to the financial milestone you want to achieve. You could start a business, invest in someone else’s business, save your income, etc.
There is no fool proof way. There is no method without risk. I do, however, have a preference for one method over the rest. While starting a business could be exciting and lucrative, it is also a life-consuming ordeal that puts a heavy strain on many marriages and families.
Here’s one method that can work if you make wise decisions and take good care of your property:
Step 1: Instead of saving $100-$500 per month, pay it towards your mortgage. In fact, do your best to live on one person’s salary and spend the second person’s salary (where applicable) on paying off your mortgage. Pay off your house in 1-5 years.
Step 2: Once the house is paid off, save that same amount you were spending on monthly mortgage payments until you can put at least 20% down on another house.
Step 3: Once you’ve arrived at your goal, purchase another house and move in.
Step 4: While house hunting, put your current house up for rent.
Step 5: Save enough of the rent to pay the property taxes and spend the rest on your new mortgage (as extra payments).
Step 6: Pay off your current mortgage ASAP (probably 2-5 yrs).
Step 7: Begin again at Step #2.
The goal is to live in consecutively nicer houses while still having the means to make double to triple payments on your mortgage each month. Within ten years, you should own somewhere between 3-5 houses, and the number will build faster as you own more houses free and clear.
Granted, at some point you won’t want to move every few months, but you won’t need to. You will need to buy investment properties outright and at some point hire a property management firm (ask me when you get there and I’ll hook you up with a good firm).
While you may or may not become a millionaire (per se), imagine generating income from 5-10 totally paid off rental houses! It’s totally doable. Yes, you will have to repair each house. Yes, you will have to rent each house out. But the risks are significantly lower when you only rent out houses you have paid for! The only monthly expenses you incur are property taxes.
As I mentioned before, if the prospect of managing rental properties scares you, I will direct you to an appropriate property management firm. My point is that this method will actually work. You might not get rich, but you can replace your income within 20 years or less.
*all numbers are subject to investor’s age and ability to make additional mortgage payments