How to Invest Money and Live Off the Interest?

Posted by Grace under Investing on March 17, 2016

Marcus from Washington DC, USA asked investing question. He asked “how to invest money and live off the interest“. Today, let us find out if investing can really help us to make the money work for us. Investing is rewarding. Of course, the old saying “high risk means high rewards” is still true. However, the question of Marcus is not appropriate to “high risks and high rewards”.

Marcus just want to invest money and live off the interest. What is meant by “living off the interest”. It means, an investor who invest money and the profits he can earned can help him/her without working. The process is called passive income.

Let us find out now how much do i need to invest to live off the interest. A simple calculation will be available as a guide.

How to Invest Money and Live Off the Interest?

How to invest money and live off the interest? Here’s the short answer from InvestmentTotal.com;

• Know the cost of your current lifestyle. Calculate your monthly expenses for your necessities like food, house utility bills, education, etc. Anything that affects your lifestyle must be calculated.
• Invest the amount of money that can earn more than the cost of your lifestyle.
• The average interest earn should only be 8%.
• Assuming you have 10 million dollars today. Do you think \$10,000,000 is enough if your current lifestyle is ten thousand dollars per month?

Wow, 10 million dollars? How to live off interest of 10 million dollars maybe you are interested ton asked that question. If you have 10 million dollars right now, would you use it as your investment funds? Or will you use it to enjoy your life?

Interest Rate Chart on Green Board

Here’s the computation:

• Cost of Lifestyle: \$10,000 Per Month (Luxurious).
• Cost of Lifestyle: \$120,000 Per Year
• 8% Percent of \$10,000,000?: \$800,000 Per Year

What if you only have \$1,000,0000 to invest and you want to live off the interest earned? What should you do? Will you have a simple lifestyle? Or will you still continue the way you live your life (luxuriously)?

Here’s the computation:

• Cost of Lifestyle: \$10,000 Per Month (Luxurious).
• Cost of Lifestyle: \$120,000 Per Year
• 8% Percent of \$1,000,000?: \$80,000 Per Year

Therefore, one million dollars is not enough to invest and live off the interest and cover your expenses every year. Unless, if you can live \$80,000 per year, the one million dollars is enough for you to live off the interest it can earned.

Where to Invest Money to Live Off the Interest?

Since your investing goal is to have a passive income. All you need to do is to find an investment that can help you earn eight percent interest for your investment each year. You should invest in a low risk types of investments because, mostly the low risks types of investment such as bonds has a guaranteed return.

Invest more on low risks types of investments but you need to invest also in a high risks types of investments. You don’t need to choose more. Choose two or three investment vehicle as long as your average return on investment is 8 percent or more per year, you’re in a good investing strategy. But, you need to analyze the risks and return of your investments.

The main reasons why you need to invest more in a low risks with guaranteed return is not only for sure profit, but also you need to protect your capital.

Do not forget to calculate your own expenses every year and make sure you have enough money to invest. Take note that the inflation rate and taxes are not included in the calculation above. Consider to know about your taxes and inflation rate.

Conclusion:

If you want to invest money and live off the interest, all you need to do is to make sure you have enough funds that can earn more than your yearly expenses.