Even a small amount of additional cash each month may make a significant difference in today’s economy. The increased income flow might be utilized to pay off existing debts, reduce working hours, or save and reinvest in other projects. However, the good news is that there are various ways to produce more income each month. While no guarantees can be made, let’s calculate out how much money you’ll need to spend to earn $1K each month, possibly, and then examine five concrete investing methods to help you get there.
The most important takeaways
- The good news is that there are various methods to earn $1000 per month by investing instead of wasting your saved money.
- According to the $1,000 per month guideline, an investor will need $240,000 in savings to be able to take $1,000 per month for 20 years throughout their retirement.
The following are the viable options for making $1000 or more each month:
- Rental real estate
- REITs, dividend stocks
- High-yield bonds
- Private money lending
What is the $1,000 per month rule, and how does it work?
During retirement, the $1,000 per month rule is a straightforward calculation used by financial planners to estimate how much money an investor needs to have saved to create a pre-tax income of $1,500 per month for 20 years.
To withdraw $1,000 every month from your savings account at a 5 percent withdrawal rate, you would need a total of $240,000 in savings.
Savings of $240,000 multiplied by 5% is $12,000 per year or $1,000 per month in savings. However, although the rule is simple to apply, it is predicated on a set of assumptions that are either right or wrong.
As a starting point, the rule assumes that the quantity of savings remains constant while deductions are being made. The risk of volatility, for example, has to be considered if the money is invested in the stock market. A 10 percent decrease in the stock market over the course of one year would result in a savings account of $216,000.
Second, if $12,000 is taken from the principal each year, $240,000 will endure for 20 years (ignoring interest). With no further growth in the savings balance during the next 20 years, the money plus the $1,200 per month income will be exhausted.
Investors who want both their cake and their ice cream must choose one or the other. Or, to put it another way, is there a way to earn $1,000 per month in income without having to dip into one’s savings? Yes, it turns out, is the answer! In the next part, we’ll go over five techniques that will help you earn $1,000 every month while still maintaining your hard-earned money.
How to generate $1,000 per month using five different ways
The possibilities for earning $1000 or more each month are many, ranging from purchasing a company with an established track record to investing in more speculative assets such as bitcoin.
Concentrate on five popular and effective ways of investing $240,000 and aim for a monthly return of $1,500 to maximize returns.
1. Lending of private funds
Becoming a private or hard-money lender is one way to earn up to $1,000 per month in potential income. Suppose you have low credit or are searching for innovative financing that a typical lender such as a bank or credit union cannot supply. In that case, a private lender is a firm or person that is more likely to work with you than a regular lender.
Loans for property and personal use are the two most popular types of credit offered by private lenders. A private lender that makes a real estate loan gets recurring principal and interest payments, loan origination costs, and points imposed on the borrower, like that of a mortgage REIT.
How much interest a private lender charges can depend on things like how much money the borrower puts down, how long the loan lasts, how good their credit score is, and how much they make. An investor with $240,000 in capital and a 10 percent interest rate may expect to earn $24,000 per year or $2,400 per month if they make a private loan with a 10 percent interest rate.
As with any other lender, a private money lender must take the time to research a borrower properly, understand what the funds will be used for, and how and when the loan will be returned before making a loan. Private lenders foreclose on borrowers’ properties and sell the proceeds to cover the outstanding loan sum if they miss their payments.
2. REITs (Real Estate Investment Trusts)
Reiterations, sometimes known as real estate investment trusts (REITs), are corporations that acquire, hold, and run various real estate firms. These assets include residential, commercial, agricultural, and special-use facilities such as assisted living and self-storage.
Like regular equities, shares of a publicly listed REIT may be purchased and sold on major stock trading platforms. Because REITs are obligated by law to deliver 90 percent of their yearly net income to shareholders in the form of dividends, they may be a suitable alternative for generating $1K every month.
According to Nareit, equity REITs have an average dividend yield of 2.79% as of October 31, 2021, whereas mortgage REITs have an average dividend yield of 8.23%. An annual return of $6,696, or $558 per month, could be earned by investing $240,000 in a residential REIT. But an annual return of $19,752, or $1,646 per month, could be earned by investing in a mortgage REIT.
One possible disadvantage of real estate investment trusts is that their shares may be readily traded, making them sensitive to market volatility. Although real estate investment trusts (REITs) have a low connection with the entire stock market, their values might nonetheless fall due to volatility when the overall stock market falls.
3. High Yield Bonds
If you are looking to earn $1,500 a month and are willing to accept a higher degree of risk, investing in a high-yield bond fund may be a good choice for you. This is because high-yield bonds are often issued by corporations that are more exposed to credit and economic risk than high-quality companies such as AT & T, which has a strong credit rating.
Purchasing shares of an actively managed exchange-traded fund (ETF) may assist in reducing the risk associated with investing in high-yield bonds. For the first quarter of 2022, three high-yield bond ETFs to consider are the VanEck Fallen Angel High Yield Bond ETF, which has an annual dividend yield of 4.01 percent, the iShares Fallen Angels USD Bond ETF, which has an annual dividend yield of 3.63 percent, and the VanEck High Yield ETF, which has an annual dividend yield of 6.81 percent.
After investing $240,000 in the High Yield ETF, an investor might earn a total yearly return of $16,344 or $1,362 per month on their investment.
4. Rental real estate
According to the American industrialist Andrew Carnegie, 90% of all millionaires become rich via real estate ownership. The assumption made by Mr. Carnegie has not been tested for accuracy. But with such a strong recommendation, it seems sensible to start our discussion with an investment in rental real estate.
Property owners produce monthly cash flow by utilizing the rental income to pay for the property’s operational expenditures and mortgage if financing is utilized to acquire the property. When there is money left over at the end of each month, this is referred to as positive cash flow.
Imagine that an investor purchases a $240,000 single-family rental home to serve as an example. The “1 percent rule,” which asserts that a rental property should yield a monthly rent equal to or more than 1 percent of the purchase price, is used to estimate gross rental revenue.
The 50 percent rule is used to estimate running expenditures, which indicates that half of the rental revenue is utilized to pay for operating expenses such as property management and leasing fees, repairs and maintenance, as well as property taxes and insurance, among other things.
In accordance with these two rules of thumb, the cash flow from $240,000 should look roughly like the following:
- Rental revenue of $28,800 per year ($240,000 x 1 percent = $2,400 per month x 12 months).
- Operating expenses: $14,400 ($28,800 rental income multiplied by 50 percent) Operating expenses
- Approximately $14,400 in cash flow before taxes (or $1,200 each month).
- Return on investment: 6 percent ($14,400 in cash flow / $240,000 in cash invested).
- According to this example, an investment of $240,000 in a single-family rental home would provide more than $1,500 in monthly income.
As a result of variables such as unanticipated repairs or a longer vacancy period, until an appropriate tenant is located, cash flow does not always remain consistent from one month to the next.
Roofstock is an excellent resource for understanding the possible returns from single-family rental properties around the United States. It is possible to find several rental properties for sale in any given time period, many of which have potential returns far greater than the 6 percent shown in this example.
5. Stocks that pay dividends
Growth stocks such as Facebook, Twitter, Google, and Tesla may not be a smart alternative to earning $1K each month.
However, corporations with well-known brand names pay an annual dividend of 5 percent or more each year. As a result of this examination by U.S. News & World Report, the top nine dividend-paying companies are as follows:
- Exxon Mobil Corporation owns 5.6 percent of the company.
- Kinder Morgan has a 5.9 percent stake.
- Altria Group owns 7.5 percent of the company.
- AT&T has an 8.1 percent stake.
Based on the assumption that a total of $240,000 was invested in AT & T, the yearly dividend income would amount to $19,440 (or $1,620 per month). Even while there is potential to locate businesses that pay bigger dividends, many investors are only interested in larger, more established companies that give their shareholders peace of mind by reliably paying dividends year after year, as the research points out.
There are many ways for investors to possibly earn $1,000 or more every month, depending on how much risk they are willing to accept as part of their overall portfolio strategy. In addition to concentrating on how much money an investment may yield every month, an investor may also wish to examine how much the asset could gain in value over the long term. Consider the growth in the median sales price of homes sold in the United States, which, according to the Federal Reserve, has climbed by 81 percent in the previous ten years alone (Q3 2011 to Q3 2021).
If housing prices continue to rise at this pace, an investor may withdraw money from one rental property and use it to purchase a second one in a few years, possibly increasing their income from $1,500 per month to $2,100 or more per month.