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Passive Income 4.0 - Investing and Location Arbitrage

If making passive income through investments isn't on the top of your priority list, it needs to be, even if you don't yet have the money to actually start. As Robert Kiyosaki taught in Rich Dad Poor Dad, becoming self employed or a business owner is an amazing first step to freedom, including location independence, but having your money make you money really is the ultimate source of passive income. This post is designed to educate and inspire you on how to either get started if you're already at that state, or to simply plant a seed and show you what's possible even if you're not. If your priority is freedom, flexibility, and location independence, then on the top of your priority list should absolutely be "Make enough income through passive investments to cover my costs of living."  I've now shared over 100+ different active ways for people to make money income online through my Travel Like a Boss Podcast interviews, this blog, as well as my own case studies, but the real reason why online income is so powerful is because it allows you to take advantage of something called "location arbitrage."

In the past four years, I went from making less than $1,000 in the bank to over half a million by I've taking all of the money I've made from the online businesses I started while living cheaply in places like Chiang Mai and made it a priority to invest over 75% of everything I made into investments. The trick is to increase your income while you decrease your living expenses, a task that would have been really hard, if not impossible to do while living back in California, Canada or any other expensive place as expenses, taxes, and everyday spending is so much higher. In this post I'm going to share everything I've learned about saving money, and the 4 steps it takes to do it yourself and to create the ultimate passive income...having your money make you money. We'll talk about going from having a job as a employee to freelancing or otherwise being self employed, starting your own business as an entrepreneur, then ultimately, becoming an investor and having your money make your money. This is a must read post for everyone, regardless of where you are in your financial independence journey.








Why Investment Income?



As a quick recap to Robert Kiyosaki's Rich Dad, Poor Dad which by the way should be required reading for everyone in high school before we become adults, he mentions the four types of income. Most of us start as employees and even though it's comfortable, it's trading time for money. As digital nomads, most of us become either self employed as a freelancer or we start a business as an entrepreneur.

Even though I'm not a fan of any of Robert's new teachings after his first couple of books, his classics including Rich Dad, Poor Dad,  Cashflow Quadrant, as well as the board game Cashflow 101 were all incredible and well worth playing and reading. These are foundational books that are a must read or listen to on places like Audible. Just don't look at his his new Rich Dad Education or Academy seminars as the reviews of them are poor. That being said, his original foundational books are incredible. Below is a summary of the four quadrants for those who haven't read the books yet or need a quick reminder.

Most of us started as employees, but quickly moved into being self employed by freelancing, or starting our own small businesses whether it be with starting a dropshipping store, Amazon FBA or Kindle business, or any of the 100+ other online businesses that my guests of the Travel Like a Boss podcast have done and shared. Most of us solopreneurs never get to the "big business' category as that requires having a minimum of 500 employees, a large corporate office, and other aspects that don't usually fit our lifestyle. However, any of us can jump straight from self-employed or even employed to the "investor category" and get benefits from it right away.








Using Location Arbitrage



If it wasn't for living cheaply in Thailand and bootstrapping my businesses, I never would have had the time or money to even get started with investing in the first place. The reasons why it's hard to save money while living back home is the fact that since most people are unhappy with their jobs, or stressed from work, it's common to use shopping as retail therapy just to cheer ourselves up, or feel like we worked hard for a reason. In cities like Irvine, California or Johannesburg, South Africa, going to the mall on weekends is commonplace and even though we sometimes get "great deals" when we buy things on sale, in reality, we're still spending money that could have gone towards a potential investment. When living in places like Thailand, since life is simple, and no one really cares what you're wearing as we're mostly in shorts, t-shirts, and flip flops, it's easy to not over buy, especially since luggage weight allowances force us into minimalism.

Aside from saving a ton of money on fixed expenses such as rent, car payments, insurance, etc, just imagine if every time you spent $20 or $40 on something that you didn't really need, you invested it instead. It's hard to remember specifically what we spent these small purchases on, but in general things like new clothes, an 8th pair of shoes, expensive haircuts, alcohol, gifts, or random things we bought just because they were on sale, add up. For an example, if you cut out the once every couple days $20 or so item you buy that you didn't really need, you would on average save $200 a month, which doesn't seem like that much, but if you had invested that over the past 5 years, you'd have $14,402.11 in savings right now. That means, if you don't have that in your bank account or in investments currently, that little change could have started you off with almost $15K to invest with. And if for any reason that sounds impossible or if you think you don't spend money on useless things, do this exercise. Go around your home and ask yourself one simple question, "How much did this item cost when I bought it, and would I rather have that amount in cash right now instead?"


Simply by saving $50 a week or $200 a month


Other Location Savings



Aside from the $200 or so we'd save per month simply by not keeping up with the jones or buying things just to buy them, we'd also save a ton of money on fixed costs of living by living aboard. For me, living in California, my rent was $1,090 on average for either a small studio apartment on my own, or to share a bigger place with a roommate. The equivalent in Chiang Mai is around $300, and when I first starting out, I'd stay in an even more minimal place with no kitchen or living room and pay $200 a month, as it was convenient to just eat out all of the time.  That combined with not needing a car, has saved me an additional $700 a month, which is the average costs of owning a car, including insurance, payments, maintenance, repairs, depreciation, gas, taxes, etc. And since places I now choose to live, whether it be the Canary Islands, Portugal, Eastern Europe, or Thailand, are very walkable and local taxis are cheap, I generally don't spend more than $20-$30 a month on transportation in total.

Here's the breakdown of how much I save by simply not living in the U.S.

$500 +/- savings per month on housing
$500 +/- savings per month on transportation
$200 +/- savings per month on purchases
$100 +/- savings per month on misc

That's a total savings of $1,300 a month which adds up to $15,600 in potential investments per year. What's crazy is the fact that if you invested that, you'd have an additional $95.991.34 in savings/investments every 5 years.

The craziest thing is that amount now doubles every 10 years even without any additions. So even if you move back home after 5 year of living aboard, as long as you never touch the $95k you saved during your time living on a beach in Thailand cheaply like I wrote about in my first book, 12 Weeks in Thailand: The Good Life on the Cheap, you'd have an extra money coming in every month for the rest of your life for doing nothing.





Where to Invest



Okay so now we know that investing is great and that we should all do it, now what? Well the first thing to do is educate yourself on the basics of investing so you never lose money. Here's a post that contains everything you need to know to get started, including books to read, how much to have in savings, dollar cost averaging, and where I started investing back in 2015 when I first started.

But if you want to jump ahead and see what I currently invest in today, and what has worked for me, here's episode 74 of episode of the Invest Like a Boss Podcast where my co-host Sam Marks and I talk openly about everything we invest our money in including stocks, index funds, peer to peer lending, real estate, bitcoin, bonds, and other alternative investment classes. You can also find the podcast and listen to it for free on your phone's podcast app or player such as CastBox, Podcast Addict, or Pocket Casts. Below are screenshots of my actual dashboards so you can see where and how much I invest in each.






Index Funds: 


Instead of buying individual stocks, I put more than half of my money into low costs index funds, mostly in Vanguard's VTI fund which tracks the entire stock market. I also have a bit of money in Wealthfront and other funds such as Vanguard's Small Cap Value Fund (VBR) and international fund VXUS), but in general, I've just been putting the same amount of money into VTI every single month since 2015 and overall my investments have grown by 9.8% annually. 






Real Estate:


Since I'm living overseas most of the year, I didn't want to deal with owning a property and having all my eggs in one basket. I know people who collect rent from their tenant that rents out their house back in London or the U.S. without issues, but then when something happens or they suddenly move out, they often have to fly back home just to take care of it. This is why I've chosen not to buy a house and have instead invest in diversified real estate profits by buying partial apartment complexes with FundRise which I have $20,000 invested.







Property Backed Loans



I made the valuable learning mistake of investing in peer to peer lending with Lending Club when I first started, which had a great concept of helping people who couldn't get loans from banks, but ultimately resulted in a ton of people defaulting and not paying them back. So now, I only give out loans that are collateralized with something like real estate. My favorite platform to do this has been PeerStreet which I already collected $4,054.04 in interest payments with on my $57,387.40 invested.






Alternative Investments:



Mainly because I am still young, with no children, or other dependents, I also like to gamble up to 10% of my networth on things like Bitcoin, Ether, FX, and other high risk investments. But in general I recomend everyone have 6 months worth of savings in something liquid like a checkings or savings account just in case something happens that is unexpected. The good news is that even though for those with a house back home, a car payment, and a lot of expenses, that number might mean having $50,000 in savings just in case. For those who choose a minimalist, location independent life, that savings buffer can be as low as even $5,000 if you don't have any debt, huge expenses, and are comfortable living in places like Thailand where you can get by for as little as $600 a month, like I did and described in 12 Weeks in Thailand, while building an online business and scaling up my income from a few hundred dollars a month to over $100,000 a year, as I described in my second book, Life Changes Quick. I highly recomend reading both of those books if you're saying to yourself that you have reasons or excuses why you can't do the same.

Watch the video below for an video explanation with more detail of this blog post and passive income investing through investments.







Final Thoughts:



I hope some of you learn from my journey and that everyone starts thinking about your future as even though I enjoyed the freedom of living cheaply in Thailand, I'm really, really glad I started investing when I did and encourage everyone to start thinking about the same.

The above screenshots are everything I mentioned in this episode, not to brag or cause a stir, but to be transparent as I know how beneficial it is and hope to encourge others to do the same as I really believe investment income is the ultimate form of passive income that we should all strive for as Digital Nomad 2.0 evolves or better yet, location independent entrepreneurs as I prefer to be called.


Today's post was written on Gran Canaria Islands from Soppa De Azul Coworking



Warm Regards,


Johnny FD




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  1. Thanks for sharing Johnny, i always follow u...

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