URUS bersama Suraya | The Maths Behind RM5,000 Passive Income Per Month

The Maths Behind RM5,000 Passive Income Per Month


Imagine reaching that point in life where working is optional - you have set up a system where you are guaranteed to receive RM5,000 of income every single month, without doing anything. Your Future Self is living their best life, thanks to the efforts done by your Past Self.


We are here to explain how this can work in practice so that you can imagine it and hopefully, make a plan to put in the efforts needed so you can live this life for yourself.


In the most straightforward way possible, the maths behind getting RM5,000 per month in passive income only requires 3 steps. They are:


Step 1: Accumulate RM1.2 million.

Step 2: Put it somewhere that gives you 5% ROI annually.

Step 3: Collect RM5,000 every month, indefinitely.


Let's break that down.


Step 1: Accumulate RM1.2 million.


Unless you are lucky (recipient of generational wealth, came into a sudden windfall, et cetera), Step 1 is undoubtedly a hard step to complete, but we never said achieving RM5,000 in passive income per month is an easy feat. Nothing worth having is easy.


However, before you give up, we ask you to consider shifting your mentality from ‘I will never get that amount’ to ‘how can I reach that amount’.


There are many ways to earn money, including continuously increasing your salary from your day job so that you can save more, and/or increasing your income from side hustles or side businesses.


To break it down into numbers and timeline, here is a rough idea of what Step 1 entails:

- It will take 30 years to reach ~RM1.2 million if you set aside RM800 per month in an investment giving 8% interest rate, compounded monthly.

- It will take selling 1,200 products/services with an average profit margin of RM1,000 each to accumulate RM1.2 million.


Before we move on to the next step, you need to remember to be realistic. Most people take years and even decades to complete Step 1, and that is okay. What is more important is for you to enjoy the journey - definitely push yourself to work hard, but there is no need to unnecessarily suffer from prolonged stress.



Step 2: Put it somewhere that gives you 5% ROI annually


If you are persistent enough, and if luck is in your favour, eventually you will complete Step 1. Again, we acknowledge it is not easy to accumulate RM1.2 million, especially for those from less-privileged backgrounds, but you can still ‘create’ your luck by having the right mindset and attitude.


In Step 2, you have the option of shifting into wealth preservation mode and just ‘retire’. Placing your RM1.2 million into a safe investment that gives you 5% ROI annually will result in RM60,000 of profit per year, or RM5,000 per month.


Finding an investment that gives you 5% ROI per annum is not a hard task. You could do your own research, or even better, hire a financial planner to find you the best options. The latter is recommended as they can also review your current financial situation, and provide personalised advice. For example, if your insurance is not comprehensive enough, you may be one medical emergency away from doing Step 1 all over again!


Step 3: Collect RM5,000 every month, indefinitely.


Step 3 is the best part of all - all you have to do is collect your money using a sustainable withdrawal system. If done right, the money you collect is pure profit from interest, without touching the initial RM1.2 million capital. To make it clear:

- RM1.2 million x 5% ROI per year = RM1.26 million.

- Withdraw RM60,000 profit from interest (RM5,000 per month) to use as living cost.

- Repeat the process and let the initial capital of RM1.2 million grow again to RM1.26 million the next year.


In financial planning, this is a retirement planning method called the Capital Intact Method. It is considered the safest way to retire, as you never have to worry about running out of money in old age - a huge fear for many!


What if you need more (or less) than RM5,000 per month?


What if RM5,000 per month in passive income is not the number you want? What if the lifestyle you desire costs RM10,000 a month, or just RM2,000 per month? That is not a problem at all - just adjust the numbers. For example,

- You need RM1.2 million to get RM60,000 per year or RM5,000 per month in passive income from an investment giving 5% ROI per annum.

- You need RM2.4 million to get RM120,000 per year or RM10,000 per month in passive income from an investment giving 5% ROI per annum.

- You need RM480,000 to get RM24,000 per year or RM2,000 per month in passive income from an investment giving 5% ROI per annum.


Notice that the percentage for ROI does not change - use 5% as a rough benchmark at most, never more. It is important to choose a safe investment for this purpose. You may not get wild gains with it, but you also do not have to be worried about waking up to half your net worth the next morning. This is the focus of a wealth preservation strategy, which prioritises low risk and stability over potential gains.


The last thing to mention here is that the calculations above have been simplified for the sake of ease of understanding. There are other factors and variables to consider, like inflation rate, withdrawal interval, fluctuating annual ROI and more. Nonetheless, having a rough number is a good enough starting point for most people.


Now, what is your action plan to complete Step 1? Read through our other articles to find tips on growing your income.



This article is contributed by Suraya Zainudin—writer, speaker and digital marketer for one of Malaysia’s top personal finance websites.



The opinions expressed in this article are those of the author and do not necessarily reflect the views of Credit Counseling and Management Agency (AKPK).