How Much Passive Income Is Enough?

So, you're on your way to earning passive income, or maybe you just want to know how much it takes or what you would need. But how much is enough? Today I'm going to help you calculate everything you need to figure out your passive income requirements. Once you're done, you can head over to my passive income posts to figure out how to get there. Good Luck!

First of all, you're going to have to add up all of your expenses for an entire year. I'll make a list of the most common ones, so you don't miss anything. Note that I LOVE spreadsheets, so I recommend making a spreadsheet either in Excel or Google Sheets to make it easier.

Easy calculations:

-If you pay annually, do not multiply it.

-If you pay quarterly, multiply by 4.

-If you pay monthly, multiply by 12.

-If you pay bi-weekly, multiply by 26.

-If you pay weekly, multiply by 52.

1. Housing Costs: This is usually your rent or your mortgage, plus any lot/condo fees you pay depending on your living situation. Let's say you own your house, and your mortgage is $1,000 per month. There are 12 months in a year, so you r yearly housing cost is $12,000.

2. Taxes: For those who have property tax (homeowners), look at your most recent statement. This is generally paid once a year, so you don't need to multiply it.

3. Utilities: This would be your energy bill (heat/power) and/or your water/sewage bill. Let's say you typically pay $200/month for heat and power, and $100/month for water/sewage. Thats $300/month, again for 12 months in a year.

4. Services: This would be your internet, cell phone bill, satellite, cable, and/or home security. Normally they charge once a month, so you would multiply by 12.

5. Subscriptions: This includes streaming, like Netflix, Disney Plus, and/or YouTube. You may even have other ones, those are just the most typical. Don't forget music subscriptions such as Apple Music, Spotify, or Amazon Music. You may also have others, such as Amazon Prime, Dollar Shave Club, makeup bags/boxes, meal kits, or the likes. Multiply them all based on their frequency (see easy calculations above).

6. Savings: This would be automatic withdrawals towards a TFSA, 401K, RRSP, or other savings account based on where you live. Again, multiply based on frequency.

7. Insurance: There are many types of insurance, so don't forget to add all of the ones you have. Car insurance, tenant insurance, homeowners insurance, business insurance, life insurance, the list is quite long. Some credit cards also charge $5-10 for insurance coverage as well, so make sure not to forget those.

8. Loans: This could be a student loan, a financed car, a personal loan; basically any debt that you make regular fixed payments on.

9. Fuel: If you drive, your vehicle is going to need gas/diesel/charging. Don't forget to include this as well. For myself, I only drive ~5km per day to and from work, and I might go to the city once a week, so $40/week is enough for me. Your needs may be different, so make sure you take any normal commutes into account when trying to figure out how much fuel you may need. Work, school, shopping, visiting friends and family, meetings, and the occasional night out.

10. Groceries/Food: This one is really hard, because it all depends on how/where you eat. When I cook at home, I can usually make a meal that feeds all 4 of us for $10. Three meals a day makes $30/day. That's $210/week, multiply by 52 weeks is $10,920 per year. Your numbers may be different. Don't forget to include takeout when adding up your food spending costs.

11. Necessities: This would include your monthly purchases for shampoo, toothpaste, soaps, toilet paper, laundry soaps, and cleaning supplies. Don't let my suggestions limit you though, you may have more. This also includes buying new clothes every few months, which is pretty important during season changes or if you have children who outgrow everything in a matter of months. For example, I have a baby, and baby clothing only fits for about 6 months. If outfits are $20, and she wears about 14 outfits per week, that's $280 every time I update her wardrobe (which is every 6 months). So, twice a year, means I am spending $560/year just on her alone. Also note that you're going to want to account for shoes, sandals, boots, jackets, swimwear, and other seasonal wear for everyone.

12. Fun: My favourite. This is not essential, but if you're going to make passive income, you're going to have a lot of free time on your hands, so you'll need to take this into account. Before Covid, I would try to get out of the house as a family once per week, which normally ended up costing $100. That would be $5,200 per year, but I also like to do online shopping, so I throw in an extra $100/month for splurging purposes too.

13. Holidays: If you love holidays, you're going to want to figure out how much you normally spend on gifts for Christmas, costumes for Halloween, treats for Easter, and decorations for any holidays you enjoy.

14. Emergency fund: Everyone needs an emergency fund, just in case. Maybe your car breaks down, you need to attend a funeral across the country, the water heater in your house needs replacing, there's a dip in income due to the economy, one of your income sources collapses, you never know what might happen. I personally like to put away $100/month, simply because I can't afford more at the moment, but $100/month is still better than nothing. Don't go extreme, but set aside as much as you can without stretching your wallet. NEVER rack up a debt (lines of credits, loans or credit cards) just so you can put it into a savings account. You'll just end up paying unnecessary interest fees on it.

15. Anything else: To make sure you don't overlook anything, grab your latest bank statement and look through your transactions to see if there's something I haven't covered.

Now that you have your yearly total (mine is $46,500), you need to figure out how often your passive income is going to pay out, and what you would need to meet your needs. In my case, it would look something like this:

-If I did drop shipping that paid me weekly, I would divide my needs by 52 (52 weeks in a year), which means I would need to earn at least $895 per week in passive income.

-If I invested in stocks paying monthly dividends, I would divide my yearly expenses by 12 (12 months in a year). So my dividends would have to be equal to or greater than $3875 every month.

-If I was knowledgeable in Crypto, I could withdraw daily if I wanted, which would mean I would need to withdraw at least $128 in profits every day.

Did that answer your question? I hope so. If not, feel free to drop a comment or contact me directly!