How to invest a small guaranteed monthly income?
"In my opinion, you can't save too much for retirement. An extra $3120/yr invested at 8% for 30 years would give you $353K more at retirement.  If your ""good amount in my 401k"" is a hint that you don't want us to go in that direction, then how about saving for the child's college education? 15 years' savings, again at 8% will return $85K, which feels like a low number even in today's dollars, 15 years of college inflation and it won't be much at all.  Not sure why there's guilt around spending it. If one has no debt, good retirement savings level, and no pressing need to save for something else, enjoying one's money is an earned reward.  Even so, if you want a riskless 'investment' just prepay the mortgage. You'll see an effective return of the mortgage rate, 4%(?) or so, vs the .001% banks are paying. Of course, this creates a monthly windfall once the mortgage is paid off, but it buys you time to make this ultimate decision.  In the end, I'd respond that similar to Who can truly afford luxury cars?, one should produce a budget. I don't mean a set of constraints to limit spending in certain categories, but rather, a look back at where the money went last year and even the year before that. What will emerge are the things that are normal, the utility bills, tax bill, mortgage, etc, as well as the discretionary spending. If all your current saving is on track, the investment may be in experiences, not financial products."
The simplest way is just to compute how much money you'd have to have invested elsewhere to provide a comparable return. For example, if you assume a safe interest rate of 2.3% per year, you would need to have about $520,000 to get $1,000/month. The simplest way is to invest in a few ETFs, depending on your tolerance for risk; assuming you're very short-term risk tolerant you can invest almost all in a stock ETF like VOO or VTI.  Stock market ETFs return close to 10% (unadjusted) over long periods of time, which will out-earn almost any other option and are very easy for a non-finance person to invest in (You don't trade actively - you leave the money there for years).  If you want to hedge some of your risk, you can also invest in Bond funds, which tend to move up in stock market downturns - but if you're looking for the long term, you don't need to put much there. Otherwise, try to make sure you take advantage of tax breaks when you can - IRAs, 401Ks, etc.; most of those will have ETFs (whether Vanguard or similar) available to invest in.  Look for funds that have low expense ratios and are fairly diversified (ie, don't just invest in one small sector of the economy); as long as the economy continues to grow, the ETFs will grow. "General advice is to keep 6 months worth of income liquid -- in your case, you might want to leave 1 year liquid since, even though your income is stable now, it is not static (i.e., you're not drawing salary from an employer).   The rest of it?  If you don't plan on using it for any big purchases in the next 5 or so years, invest it.  If you don't, you will probably lose money in the long term due to inflation (how's that for a risk? :).  There are plenty of options for the risk averse, many of which handily beat inflation, though without knowing your country of residence, it's hard to say.  In all likelihood, though, you'll want to invest in index funds -- such as ETFs -- that basically track industries, rather than individual companies.  This is basically free portfolio diversity -- they lose money only when an entire sector loses value.  Though even with funds of this type, you still want to ensure you purchase multiple different funds that track different industries.  Don't just toss all of your funds into an IT index, for example.   Before buying, just look at the history of the fund and make sure it has had a general upward trajectory since 2008 (I've bought a few ETFs that remained static...not what we're looking for in an investment!).  If the brokerage account you choose doesn't offer commission free trades on any of the funds you want (personally, I use Schwab and their ETF portfolio), try to ""buy in bulk.""  That way you're not spending so much on trades.   There are other considerations (many indexed funds have high management costs, but if you go with ETFs, they don't, and there's the question of dividends, etc), but that is getting into the weeds as far as investing knowledge is concerned.   Beyond that, just keep in mind it'll take 1-2 weeks for you to see that money if you need it, and there's obviously no guarantee it'll be there if you do need it for an emergency." "I hope I'm misunderstanding your plan... you want to invest in a way that will make SO MUCH that you pay back all of the loan payments with investment gains? Like the answer I gave on the preceding question, and like @littleadv's comment/mhoran's answers... don't do this. No good will come of it.  This strategy requires higher returns, but does not necessarily give you a better return.   But because you asked the question again, let me specify what you're missing... I do think that learning is a good thing. It boils down to two very significant problems that you haven't addressed:  (1) Where are you getting your monthly ""income"" from?  (2) Realistic vs. Daydreaming--How big do any gains have to be and does that exist in the real world in a way that you can capture?  In a nutshell, if my answer to the last question showed that it's crazy to invest and pay back out of your capital and income... since you're trying to keep your capital and only pay back with monthly gains, this one will require even higher and thus more unrealistic gains.  The model you're implying:  If that's what you mean with this model, (which I think you do), then here are my two very key questions again: How are you getting your monthly income? Financial investments (i.e. stocks or bonds) will have two components of value. One component of value is the stream of payments, such as a monthly dividend from stocks that pay those, or the interest payment from a bond. The other is the ability to resell a security to another investor, receiving back your capital.  So... you either have to find Bonds//Dividend stocks that pay >52% returns tax-free each year, and pay this loan off with the payments. (Or higher returns to cover taxes, but these kinds of investments do not exist for you.)  OR you can try to invest in something, pray that it goes up ≥4.323% per month and so that you can sell it, pay back your loan payment with the proceeds, and use the capital to buy your next investment... that will go up 4.323% per month, to turn and sell it again.  The pros that do model this type of speculation go into much more depth than you are capable of. They build models that incorporate probabilities for rates of return based on historical data. They have better information, and have specialized in calculating this all out. They even have access to better investment opportunities (like pre-IPO Twitter or private notes). You just won't find the opportunities to make this happen, each month, for 24 months. (Again, you won't find them. They do not exist for you in as an investor in securities) Realistic vs. Daydreaming So... clearly I hope that by now I have convinced you that these would be the required returns. They simply aren't available to you. If they were, you would still run into obstacles with converting 'book' returns into physical money that you could repay the loans with, and then continuing that growth.  And while I appreciate the notion that 'if I could just make the payments each month, I'd have $10,000 after 24 months!' I guarantee you that you'll be better off finding another way to target that same investment.  Along the lines of what mhoran said, if you aim for a basic 401K or other similar investment account and target it into the S&P500, you might see returns of anywhere from -25% to +25% over the next 24 months... but if things went like they tend to average for the S&P500, it's more like ~7% annually. Check out a ""savings target calculator"" like this one from Bankrate.com and put in the numbers... if you can save about $390 a month you'll be at $10K in 24 months. It's not as fun as the other, but you can actually expect to achieve that.  You will not find consistent >50% returns on your money annually." You can earn significantly more than 0.99% in the stock market.  I'd pay the $450/month and invest the rest in a (relatively conservative) stock market fund, making monthly withdrawals for the car note. Given that you are starting with a relatively small amount, you want a decent interest rate, and you want flexibility, I would consider fixed deposit laddering strategy. Let's say you have ₹15,000 to start with. Split this in to three components: Purchase all of the above at the same time. 30 days later, you will have the first FD mature. If you need this money, you use it. If you don't need it, purchase another 90-day fixed deposit. If you keep going this way, you will have a deposit mature every 30 days and can choose to use it or renew the fixed deposit. This strategy has some disadvantages to consider: As for interest rates, the length of the fixed deposit in positively related to the interest rate. If you want higher interest rates, elect for longer fixed deposit cycles.For instance, when you become more confident about your financial situation, replace the 30, 60, 90 day cycle with a 6, 12, 18 month cycle The cost of maintaining the short term deposit renewals and new purchases. If your bank does not allow such transactions through on line banking, you might spend more time than you like at a bank or on the phone with the bank You want a monthly dividend but this might not be the case with fixed deposits. It depends on your bank but I believe most Indian banks pay interest every three months As mentioned in the other answer, you can't invest all of your money in one slightly risky place, and to receive a significant return on your investment, you must take on a reasonable amount of risk, and must manage that risk by diversifying your portfolio of investments. Unfortunately, answers to this question will be somewhat opinion and experience-based. I have two suggestions, however both involve risk, which you will likely experience in any situation. Peer to Peer Lending In my own situation, I've placed a large sum of money into peer-to-peer lending sites, such as LendingClub. LendingClub specifically advertises that 98% of its user base that invests in 100 notes or more of relatively equal size receive positive returns, and I'm sure you'll see similar statements in other similarly established vendors in this area. Historical averages in this industry can be between 5-7%, you may be able to perform above or below this average.  The returns on peer to peer lending investments are paid out fairly frequently, as each loan you invest in on the site pays back into your account every time the recipient of the loan makes a payment.  If you invest in small amounts / fractions of several hundred loans, you're receiving several small payments throughout the month on various dates. You can withdraw any money you have received back that hasn't been invested, or money you have in the account that hasn't been invested, at any time for personal spending. However, this involves various risks, which have to be considered (Such as someone you've loaned money to on the site defaulting). Rental Property / Property itself I'm also considering purchasing a very cheap home, and renting it out to tenants for passive income. This is something I would consider a possibility for you. On this front, you have the savings to do the same. It would be possible for you to afford the 20% downpayment on a very low cost home (Say, $100,000 or less up to $200,000 depending on your area), but you'd need to be able to pay for the monthly mortgage payment until you had a tenant, and would need to be able to afford any on-going maintenance, however ideally you'd factor that into the amount you charged tenants. You could very likely get a mortgage for a place, and have a tenant that pays you rent that exceeds the amount you pay for the mortgage and any maintenance costs, earning you a profit and therefore passive income. However, rental properties involve risks in that you might have trouble finding tenants or keeping tenants or keeping the property in good shape, and it's possible the property value could decrease.  One could also generalize that property is a somewhat 'safe' investment, in that property values tend to increase over time, and while you may not significantly over-run inflation's increase, you may be able to get more value out of the property by renting it out in the mean time. Additional Note on Credit You mention you have a credit card payment that you're making, to build credit. I'd like to place here, for your reference, that you do not need to carry a balance to build credit. Having active accounts and ensuring you don't miss payments builds your history. To be more specific, your history is based off of many different aspects, such as:  I'm sure I missed a couple of things on this front, you should be able to find this information with some research. Wanted to make sure you weren't carrying a balance simply due to the common myth that you must do so to build credit. Summary The items mentioned above are suggestions, but whatever you choose to invest in, you should carefully spread out / diversify your portfolio across a variety of different areas.  It would not be advisable to stick to just one investment method (Say, either of the two above) and not also invest in stocks / bonds or other types of investments as well.  You can certainly decide what percentage of your portfolio you want to invest in different areas (for instance X% of assets in Stocks/bonds, Y% in real-estate, etc), but it does make the most sense to not have all of your eggs in one basket. Compound interest is your friend. For such a low amount of cash, just pop it into savings accounts or deposits. When you reach about 1.500€ buy one very defensive stock that pays high dividends. With deposits, you don't risk anything, with one stock, you can lose 100% of the investment. That's why it's important to buy defensive stock (food, pharma, ...). Every time you hit 1.500€ after, buy another stock until you have about 10 different stock in different sectors, in different countries. Then buy more stock of the ones you have in portfolio. You're own strategy is pretty good also. For this scheme to work, you would require an investment with no chance of a loss. Money market accounts and short-term t-bills are about your only options. The other thing is that you will need to be very careful to never miss the payment date. One month's late charges will probably wipe out a few months' profit. The only other caveat, which I'm sure you've considered, is that having your credit maxed out will hurt your credit score. If you need the money in the short-term, you want to invest in something fairly safe.  These include saving accounts, CDs, and money market funds from someplace like Vanguard.  The last two might give you a slightly better return than the local branch of a national bank. A quick Excel calculation tells me that, if you are earning a guaranteed post-tax return of 12% in a liquid investment, then it doesn't matter which one you pick. According to the following Excel formula: You would be able to invest ₹2,124 now at 12% interest, and you could withdraw ₹100 every month for 24 months.  Which means that the ₹100/month option and the ₹2100/biennium option are essentially the same. This, of course, is depending on that 12% guaranteed return.  Where I come from, this type of investment is unheard of.  If I was sure I'd still be using the same service two years from now, I would choose the biennial payment option. You asked in the comments how to change the formula to account for risk in the investment.  Risk is a hard thing to quantify.  However, if you are certain that you will be using this service in two years from now, you are essentially achieving 13% in a guaranteed return by pre-paying your fee.  In my experience, a 13% guaranteed return is worth taking.  Trying to achieve any more than that in an investment is simply a gamble. That having been said, at the amount we are talking about, each percent difference in return is only about ₹22.  The biggest risk here is the fact that you might want to change services before your term is up.  If these amounts are relatively small for you, then if there is any chance at all that you will want to drop the service before the 2 years is up, just pay the monthly fee. The classic answer is simple. Aim to build up a a financial cushion that is the equivalent of 3 times your monthly salary. This should be readily accessible and in cash, to cover any unforeseen expenses that you may incur (car needs repairing, washing machine breaks down etc). Once you have this in place its then time to think about longer term investments. Monthly 'drip feeding' into a mutual stock based investment fund is a good place to start. Pick a simple Index based or fund with a global investment bias and put in a set amount that you can regularly commit to each month. You can get way more complicated but for sheer simplicity and longer term returns, this is a simple way to build up some financial security and longer term investments. Unfortunately, in this market environment your goal is not very realistic. At the moment real interest rates are negative (and have been for some time).  This means if you invest in something that will pay out for sure, you can expect to earn less than you lose through inflation.  In other words, if you save your $50K, when you withdraw it in a few years you will be able to buy less with it then than you can now. You can invest in risky securities like stocks or mutual funds.  These assets can easily generate 10% per year, but they can (and do) also generate negative returns.  This means you can and likely will lose money after investing in them.  There's an even better chance that you will make money, but that varies year by year.  If you invest in something that expects to make 10% per year (meaning it makes that much on average), it will be extremely risky and many years it will lose money, perhaps a lot of it.  That's the way risk is.  Are you comfortable taking on large amounts of risk (good chances of losing a lot of your money)? You could make some kind of real investment.  $50K is a little small to buy real estate, but you may be able to find something like real estate that can generate income, especially if you use it as a down payment to borrow from the bank.  There is risk in being a landlord as well, of course, and a lot of work.  But real investments like that are a reasonable alternative to financial markets for some people. Another possibility is to just keep it in your bank account or something else with no risk and take $5000 out per year.  It will only last you 10 years that way, but if you are not too young, that will be a significant portion of your life.  If you are young, you can work and add to it. Unfortunately, financial markets don't magically make people rich.  If you make a lot of money in the market, it's because you took a risk and got lucky.  If you make a comfortable amount with no risk, it means you invested in a market environment very different from what we see today. --------- EDIT ------------ To get an idea of what risk free investments (after inflation) earn per year at various horizons see this table at the treasury.  At the time of this writing you would have to invest in a security with maturity almost 10 years in order to break even with inflation.  Beating it by 10% or even 3% per year with minimal risk is a pipe dream. Short time horizon, small pot of money, and low appetite for risk?  That smells like low return situation to me. I guess it depends on how low your appetite for risk is, though.  You could open a brokerage account (free) and purchase $10K worth of a fully diversified ETF like VTI, optionally putting maybe 20% of it in a diversified bond ETF.  I consider that a reasonably conservative investment, but if you are of the mindset that you cannot tolerate a drop in your wealth, it's not going to work.  Plus if you don't have any other investments, this will be the thing that requires you to report capital gains to the IRS, and that paperwork is never fun. As an alternative, you have CD's, which will make you very little.  Or a high-ish interest rate electronic savings account like Capital one 360 or Emigrant Direct (there are probably newer ones now that outcompete even these).  Still, with anything in this paragraph you will be lucky to beat inflation.  The real interest rate was negative last time I checked, so every risk-free investment will lose money in purchasing power terms.  To beat inflation you will need to take on nonnegligible risk. The formula you're looking for is  Thus, from 3% p.a. you get ca. 0.247% per month. However, as you see 0.25% is a good approximation (generally, small rates give good approximation).