So you’ve followed Dave Ramsey’s snowball, or the avalanche, or some combination or variation of them and gotten yourself out of consumer debt. You’ve started to grow the gap between what you earn and what you spend. Your fundamental game is getting stronger every day. Where do we go from here?
The next step is to invest that gap between your earning and spending, and make that money work for you! Robert Kiyosaki talks about each dollar being an employee. The more employees you have working for you, the more income they can produce. We want to get them working in the best places to get a great return on our investments.
You’ll need to decide what your goals are for your dollar employees. Do you want to put in work now that will build passive income that can create cash flow for the rest of your life? Do you want to do something more “set it and forget it” like index fund investing? Do you want to build a business of your own on the side that may take the place of your 9 to 5 someday? None of these need to be mutually exclusive either, you can invest while also starting a side hustle. You can invest in both real estate and the stock market. All of these should depend several factors. Your level of interest in the possibilities, your time available invest, and your knowledge of each should all be taken into consideration. Not that you can’t learn more about any of these options, but starting with something you know well can got you off on the right foot before diversifying.
Real estate such as buy and hold rental properties, vacation rental properties, AirBnB properties etc can be great investments for creating monthly cash flow. You’ll find great information about this type of investing at biggerpockets.com or affordanything.com. These investments may take quite a bit of attention and time up front, but once running can be very passive. Less passive if you manage them yourself, but you can always hire a property manager if the numbers work.
Buy and hold index fund investing is a great vehicle to set it and forget it. This is generally the type of investing you should look into for your 401k and IRA. Look for a low fee broad or total market index fund like VTSAX from Vanguard to propel you to a 7%-8% average return over time and build your nest egg. Use this vehicle if you’re looking to hit your FI number and start drawing down from the balance.
Starting a side hustle or business can be the most involved, most work of the options, but it can also be the most lucrative. You can certainly lose money this way, it’s not as much of a “guarantee” as index funds or real estate equity growing over time, but it also has unlimited income potential. Business income is only limited by how much you can scale it and be successful. Sometimes, the sky is the limit!