Q: I have 75k saved up in my bank account. I’m 24 years old. I want to generate passive income and retire by 30. What should I do with the money or how should I invest it?

A: From Eric Nelson:

George Clason wrote a series of pamphlets in the mid-1920’s, which were eventually bound together and published under the name The Richest Man in Babylon.

Since it was originally a series of pamphlets, the book is composed of short, allegorical stories, all intended to teach readers how to acquire money, how to keep it, and how to use it.  The persistent character in each story is Arkad, the richest man in Babylon, who is often the teller of the stories, describing how he earned that title and drawing attention to relatable truths.

I would suggest studying, from this book, the iconic 5 Laws of Gold:
I. Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family.
II. Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.
III. Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.
IV. Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.
V. Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.

If I had $75k and my aim was to retire in 6 years, I would certainly not put it in a savings account, where it can gather dust.  I wouldn’t even put it in a brokerage account, where you entrust it to unknown and unacceptably volatile forces.  What you must do, instead, is to set your “gold” to laboring diligently by investing it under the advice of men wise in its handling.

First thing I’d do is take stock of who I know who has demonstrated wisdom in the creation of wealth.  Buy them lunch and ask them how they’d get started if they only had $75k to work with and they wanted to put it to work.  The most common suggestion will probably be to invest in rental property.  Even with mediocre credit, you should be able to easily obtain a loan to purchase a $300k 4-plex on a 15-year loan.  Live in 1 unit and rent out the other 3.  At $1k/month, even if each of your units are vacant 2 months out of each year, you’ll earn an average of $2500/mo.  That amount will completely cover your PITI, plus provide a cushion for small repairs.  Note: Plan to spend about 5 hours per week talking with your tenants, building personal relationships with each of them, and solving problems: If your tenants know and like you, they will…
…feel more comfortable telling you about problems that might lead to damage to the property
…feel less comfortable causing damage to the property.
…be more likely to help you find someone to fill their vacancy when they leave.
…be less likely to pay rent late or play other money games with you.
etc.

Now you have some cash left over (because you didn’t need to put it all into the house), and your monthly expenses are pretty low, because your tenants are paying your mortgage.

Let’s say, after purchasing the 4-plex, you have about $10k left.  Keep that liquid and off-limits.  Then follow the First Law of Gold and continue adding to it.  Assuming you’re making at least $36k/year (and if you’re single, without dependents or other tax deductions, you can expect to take about 75% of that home), you’ll have a monthly income of about $2300 starting out.  Since you don’t have a mortgage payment or other dependents, you should be able to save at least $1k of each paycheck.  No extravagant purchases — only the necessities and a little bit of fun.  After a year, you’re 25, and you’ve got $22k banked and you’ve paid $12k of your 4-plex principal.

Meanwhile, you’ve been talking with these wise wealth-creators, and you’ve been invited to take part in a very reasonable wealth-creation strategy, by which you can expect to earn something like 10% on your $12k, year over year, which you would reinvest each year after capital gains tax.

Assuming you’re able to do some sort of investment like this every year, you’d keep investing your $12k each year.  If your investment isn’t tax-sheltered (and it probably isn’t), you’ll lose 15% of the interest income each year:
Age 25: $12k
Age 26: $12k + $1k + $12k = $25k
Age 27: $25k + $2k + $12k = $39k
Age 28: $39k + $3.3k + 12k = $54.3k
Age 29: $54.3k + $4.6k + $12k = $70.9k
Age 30: $70.9k + $6k + $12k = ~$90k

So by age 30, you’ll have ~$150k in equity in your home and ~$90k in your alternative investment.  And you’ve spent 6 years building your credit rating and learning how to own and manage rental property.

Say you now sell your 4-plex.  Assuming appreciation has just kept pace with inflation, you have about $140k (after realtor’s fees) to put in on a 24-plex.  And, of course, since it’s your primary residence, you don’t pay any capital gains tax (read more about the Primary Residence Exemption here: IRS Issues Home Sale Exclusion Rules) and can put it directly into a new property.  You can buy a nice 24-plex for $1.5M.  Because you’ve got such great credit from your 6 years of steady payments, a 9% down payment is perfectly acceptable.  If necessary, you might need to draw $15k from your alternative investment, to get the down payment above 10%.

Now you’re renting out units in a 24-plex at $800/month.  Say you have 20% vacancy, just like with the 4-plex, so you’re making an average of $15k/month according to http://www.contacthmrc.com.  Spend $3k/month on a property manager (who will do full-time what you used to do part-time with your 4-plex — build relationships with the residents, find new residents, handle the paperwork, take phone calls, etc) and $1k/month on a part-time handyman/janitor.  With a $7.6k mortgage payment each month, total monthly expenses are 11.6k.  You?  You’re making $3.4k/mo.  You’ll still only be able to take about 3/4 of that home, though, so you’re looking at an income of about $2.5k/month.

Now, you’re sitting in the same place you were 6 years ago: you’ve got $75k in the bank.  Except you’ve also got a stream of income bringing you $2.5k every month, and you can do what you want with it.

I believe you can rent a furnished apartment in Budapest for about $450/mo.  Then hop over to Greece.  Then Portugal.  Etc.

And always observe the First Law of Gold.  Never spend more than 9/10 of what you earn each month, so you’ll always be increasing your wealth.  You’ll easily be able to consider yourself retired at this point, if you choose.  You’ll still need to put in maybe 4 hours per week into checking email, performing oversight, solving small problems, etc.  This is where you implement your 4-hour workweek principles from Tim Ferriss.

If this plan seems too idealistic, just remember, you started with a $36k/year salary and all it did was keep pace with inflation for 6 years.  You can probably do a lot better than that.

By the way, I’m 25, married, with 2 kids, and this is the plan I’m working from (without the $75k jumpstart and with a few modifications to account for my additional family members). Follow the Laws of Gold and don’t neglect the first step: find and spend time with other people who are wise in creating wealth — this alone will make all the difference.