6 Essential Tips on How to Live Off Interest

Let’s say you take about 20% of your annual income from an early age of 20 years and invest it in an S&P 500 index fund. Assuming the index funds keep growing at the long-term historical rate of 12%, and you get up to a 4% increase every year, you can easily decide to retire from your current job before 45, and continue living off the interest of your previous investment. In this post, we will be providing you with some useful tips on how to live off interest from your investments.

1. You Need Careful Planning and Willpower

Taking out 20% of your annual income and investing it is challenging. Let’s assume your make $60,000 per annum. In order to save 20% of your entire annual salary ($12,000), you must be ready to take out $1,000 of your monthly paycheck. You will put this into an investment that you won’t touch at all. However, doing something like this requires financial endurance. You must be ready to live below your means. At this stage, you may need to sideline travels, entertainments, and other indulgences. Thus, with proper planning and willpower, you can live off the interest from your investments.

2. Make an Investment Strategy

In addition, you need to make an investment strategy. Take your income and expenses into account. Create a suitable plan to earn and invest money. From your monthly income and essential expenditures, like utility bills and rent, see how much will be left and how much you can invest. Hence, you can decide the amount of money you are willing to invest every month. However, try as much as possible to ensure that the amount you are setting aside for investment is up to 20% of your monthly paycheck.

3. Make the Saving Automatic

Once you have decided that amount you are willing to invest every month (or %20 of your total salary), then make the saving automatic. You can set things up to ensure that the money is withdrawn from your account automatically, once you receive your salary. Since your plan is to retire at a young age, place the savings into a non-tax sheltered investment account.0

4. Purchase and Hold

Purchase into a very broad-based investment, such as the Vanguard 500. Continue to add money to the investment. Avoid any temptation to move your investment around. With this, you will only have to pay long-term capital gains tax anytime you withdraw the money. Also, you will enjoy pleasant tax and other benefits when you start liquidating the investment after your retirement.

5. Learn to Live Economically

Another tip on how to live off interest from your investment is that you must learn how to be financially prudent. Instead of buying a new Lexus jeep, opt for a sturdy late-model used car. To be able to achieve your objective of saving 20% of your annual income, you need to make good life choices. Once you have made the investment automatic, you can live a frugal lifestyle by surviving on anything that you’re left with.

6. Spread Out Your Investment

Finally, if you do not want to put 20% of your annual income in a single investment, you can consider spreading out your investment. Make different investments which will pay off at separate times of the year. Your investment portfolio can include a combination of trusts, funds, as well as other income-paying investments. Select investments that will pay dividends at different periods throughout the year. While even payments may not be guaranteed all year round, spreading out your investment will make it possible for you to have income to live off.


There you have it! Above are some essential tips on how to live off interest from your investments. Investing a percentage of your annual income requires financial endurance and willpower. However, this is a great decision that will yield huge benefits in the future.  Also, the more money that you are able to invest upfront, the more interest you will be receiving as income. By following the insightful tips provided above, you can live off interest from your investments.

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