The Simple Way I Created Passive Income to Reach Financial Independence Retire Early (FIRE)

Updated: May 3, 2021

How I Created Passive Income to Reach Financial Independence Retire Early (FIRE)

There are many different ways to create passive income streams.

From affiliate marketing, rental properties, selling online courses to index fund investing. The possibilities seem endless!

First, what is considered "passive" income? Passive income is defined as a stream of income earned with little effort.

According to the IRS, this includes rental income.

But given the maintenance required in home ownership, I personally don't consider owning rental property to be "passive" at all.

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Index fund investing is my favorite way to build passive income.

Investing in index funds is an extremely passive way to build wealth and some experts argue, the most efficient...even more so than real estate or running a business.

After all, you don't have to deal with a pipe burst, unreasonable customers, bad tenants, etc.

It's just a few clicks online to set up a diversified portfolio!

WTF is an index fund? Is it a type of stock?

An index fund is like a basket of stocks. There are hundreds or thousands of different stocks inside.

The S&P 500, for example, is a fund that holds stocks for the 500 largest companies in the U.S. This includes Apple, Google, and Facebook.

Index funds are the cheapest and easiest way to diversify your money that you’re investing.

The Simple Way I Created Passive Income to Reach Financial Independence Retire Early (FIRE)

Simply put, an index fund:

  • tracks the components of a financial market index, such as the Standard & Poor's 500 Index (S&P 500)

  • provides broad market exposure, low operating expenses and low portfolio turnover

  • has lower fees (expense ratios) than actively managed funds

  • has better returns than actively managed funds

Index fund investing allows your money to compound over time so that you can earn money while you sleep.

Not interested in stock picking and day trading? Me too!

Want to sleep soundly at night despite the volatility of the markets?

Me too! I love my sleep! That's why I follow Jim L Collin's passive index fund investing strategy.

Read "The Simple Path to Wealth” by JL Collins here!

Because index funds ebb and flow with the market, they stay relatively consistent and avoid the risk associated with picking individual stocks.

“The trick is not to pick the right company; the trick is to essentially buy all the big companies through the S&P 500 and to do it consistently and to do it in a very, very low cost way,” - Warren Buffett.

Market crashes are to be expected.

Many of us are still scarred by the last Great Recession. What happened in 2008 was not something unheard. 

It happened in '74, '87, and many other times throughout history. And it will happen again. And again. 

Yet, the market always recovers

Since the beginning of the stock market, it has always recovered from every crash. Charts show that the stock market is on an upward trajectory.

The market always goes up.

Always. But it's just NOT always a smooth ride. 

It can be an emotional roller coaster ride if you look at the market index every day. But you don't need to be watching the market each day...or each month...

When the market crashes, it's an opportunity to buy MORE index funds.

What the market crashes, that means index funds are on SALE! Who doesn't love a half off deal?!

Rather than watching the markets everyday, save yourself the time and energy by minimizing risks.

The Simple Way I Created Passive Income to Reach Financial Independence Retire Early (FIRE)

My investment strategy to minimize risks:

  • Diversify across different asset classes

  • Diversify within asset classes

  • Diversify across markets, countries and currencies

  • Diversify across time

What does it mean to be that diversified?

Index fund investing should be a long-term strategy. This means at least a 10-year investment strategy.

No jumping in and out of the market.

Even the top financial experts are not able to predict the right time to buy stocks.

When people try to time the market, they are relying on "luck". It starts to become like gambling.

Gambling is not the way to invest your retirement savings!

The stock market should NOT be like gambling.

Remember, if you jump in and out of the market, you have to be right TWICE.

When you buy and when you sell.

Being right twice is very difficult. So stop gambling!

Rather than watching the markets everyday, save yourself the time and energy by minimizing risks.

Which passive income strategy is best for you?

Quiz: Best Passive Income Strategy for Your Personality!

How I Create Passive Income to Retire Early


Warren Buffet says that investing in index funds would be the advice he'd leave for his wife if anything were to happen to him.

VTSAX returns 7-8% percent compounded annually.

VTSAX is a low cost index fund that meets all the diversification points mentioned above.

According to many financial experts (not just Warren Buffett), investing in VTSAX is the simplest path to wealth.

  • During pre-retirement years, many recommend investing 100% in VTSAX.

  • Upon reaching retirement, rebalance your portfolio to 75% VTSAX and 25% VBTLX (bonds).

Why add bonds to the portfolio?

VBTLX (Vanguard Total Bond Market Index Fund) Bonds provide income. Bonds tend to smooth out the rough ride of stocks and are a deflation hedge. 

When stocks go down, bonds tend to go up. When stocks go up, bonds tend to go down.

That is why owning both VTSAX and VBTLX helps to smooth out the volatility of the stock market.

Keep adding to your portfolio.

By adding to your index fund portfolio systematically over months and years, you can reduce risk and increase returns over time.


The Simple Way I Created Passive Income to Reach Financial Independence Retire Early (FIRE)

Most people lose money in the stock market. But you don't have to be another statistic!

People tend to sell when it's a bear market. They buy when it's a bull market.

Basically, people tend to buy high and sell low. 

It's just human nature. We are psychologically unsuited to prosper in a volatile market. It takes effort to understand, accept and then change this "gambling" behavior.

Keep it simple.

Pre-retirement: 100% VTSAX

Post-retirement: 75% VTSAX + 25% VBTLX

How do you get started?

I recommend opening a Vanguard account because they have the lowest expense fees. At the time of this article is published VTSAX is .04% and VBTLX is .05%.

Roth IRA? HSA? 401K account? Yes, yes and yes.

Yes, my portfolio consists of 0% bonds. After all, I’m “Not a Bond Girl”!

Almost 100% of my investment portfolio is invested in VTSAX. This goes for my personal brokerage account and tax sheltered accounts.

And I sleep very well each night. Interested in taking a deeper look into this strategy?

Read "The Simple Path to Wealth” here!

Ready to Financial independence retire early (FIRE) like a boss?

Get FIRE’d up about financial freedom.

There are a endless ways to create side hustle income and reach FIRE. Investing in stocks, owning rental property, creating your own online biz, and so forth.

But it doesn’t mean you need to do it all. Just pick 1 or 2 that gets you excited.

Everyone's financial situation and personal interests is unique. It’s important to try out different side hustles to see what works best for you.

Which passive income idea best suits your personality?

Quiz: Best Passive Income Idea for Your Personality!

How I Create Passive Income to Retire Early