Our Goal: £25,000 Passive Income Per Year

This blog post was originally written in February 2014 for our sister website – The Money Muppet. We set that site up in January 2014 as we embarked on our journey to financial freedom. The Money Muppet site no loner exists, so we’ve incorporated our financial journey into our travel blog.

When we decided on the goal to become financially free, it was obvious we’d have to make an important decision. Just how much money do we need, not only to survive, but to live expansive lives, to enjoy ourselves, to not feel crushed by a lack of cash? My guess is most folks have little idea, or believe they cannot survive on less than their current income?

We knew differently, to some degree at least.

With a couple of years experience of living on a tight (count every penny) budget, we knew we could live, travel full time, and be rather happy indeed, on roughly £13,500 per year. This number excludes a few things though. We travelled by motorhome, and if we were to continue doing so indefinitely, we’d probably have to trade in to a new van every five to ten years, depending on how new  a van we bought. As a rough guess we’d factor in £1000 a year for motorhome replacement costs, and another £1500 per year in insurance, service and consumable costs.

There’d also likely be other one-off costs we generally avoided in our two year stint: dental treatment, buying new clothes, buying a new laptop and sat nav every few years, travel insurance, new specs, a jet ski/trailer (just kidding) and so on. Maybe another £1000 per year all-in. So, wandering Europe full time and for ever would set us back around £17,000 per year. There are already various ways obvious to me to get this cost down, like getting free lodgings in return for a few hours work a day:  such as www.workaway.info, but as a rough number this works for me.

All the same, travelling full time around Europe in a motorhome’s pretty expensive, you after all could backpack around the world for a year for less than £12,000. We could move to Thailand, Mexico, Equador and live in a nice house with a car, doing zero work if we opted not to bother, for £6000 to £12000 a year.

Anyway, I’m heading off piste here. The point is: to know how much we need to be financially free, we had to make a call on how we wanted to live our lives. We made one big assumption: our budget would need to support us living a ‘normal’ life in the UK. Living in a 2 bed semi with the associated mortgage/rent, utilities, council tax, running an old car, being able to eat and, occasionally, buy some new clothes from the local Asda. We’d also want to indulge ourselves in the odd 3 month foray abroad in some fashion.

Why this assumption we need to be able to afford to live in the UK? Good question. It’s our fall-back should unforeseen circumstances force us to come back. It’s our get-out-of-jail-free card. We know that our ability to earn at the moment is about as high as it will get. These next few years are, hopefully, reaching upwards to the peak of our earning capabilities, and we’re planning on making the most of it to hit this lofty target.

In order to test the feasibility of living on £25k a year in a 2 bed semi with a small car, that’s what we’re doing. Ju’s keeping a track of our costs and so far, so good, we’re under budget by a good margin (don’t ask me how much, she’s not around so I don’t know!). According to the BBC back in 2008, a child-less couple of working age would need £12,500, plus housing costs for a basic standard of living in the UK. Given our rent alone is £6000 per year in the English Midlands, a £25k all-in budget looks ball-park reasonable for us frugal folks.

So, that’s the reasoning for the £25,000 per year. It’s a pretty rough and ready target, but if we can achieve it, we should be able to be as fickle as nippers in deciding how we want to live out the remainder of our days on Earth. We’re currently at around £5000 per year passive income after costs and tax. Our pensions will throw in another £13000 or so per year, but not for 20-odd years, so we’re on our own until then.

But we’re upbeat, we’re on our way to freedom.

Cheers, Jay

P.S. Thanks to those of you who’ve emailed with your own stories. I can hardly recall a conversation with my parents or indeed anyone about how to manage our financial affairs, it seems to be taboo, and hearing of your stories really helps push me along. You give me much encouragement to believe that what we’re trying to do isn’t totally mad!

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