I was lucky, I don’t know why, but for some reason I picked up on the concept of passive income at an early age. At 9 years old I used to consistently beat my parents at Monopoly. At 9, I was just happy to be better at something then the grown ups, but I was subtle learning an important lesson. Id giggle as each time they landed on one of my properties I was slowly taking their money one faux hundred dollar bill at a time, and my pile of money would grow strong until the game ended. Today I know this, was a rough concept of generating passive income.
What Is Passive Income?
Passive income is payment you recieve on a consistent basis, with very little to effort required to maintain it. Contrary to active income, in which you trade your time for money, passive, or residual income is created generally by investing in assets, or putting in a lot of time up front that produce a monthly income.
Why is passive income important?
Passive income is important because, it is not directly related to the time that you spend. You make educated investments that create a steady income stream. Because you are not spending time, passive income investments are a good way to plan for retirement. By gaining more and more income producing assets, you are in direct control of growing your wealth.
Some Passive Income Examples:
- Buying a rental property and renting it out
- Building a website that generates monthly income
- Buying a profitable business
- Buying a profitable website
- Inventing a product, and have someone sell it for you
- Interest from savings accounts
- Investing in Dividend producing stocks
- Peer to peer lending
I have dabbled in a few of these, but I’ve been able to create the majority of my income with rental properties, as you recall with house #1 and house #3. Rental properties have allowed me to achieve financial independence, and I am currently growing this business. I am a big believer in diversification, I’ve always been an advocate of diversification, and no one way is better than the other. I recommend that people experiment on a small scale to see which methods interest you the most
Passive income is not FREE money. All forms of passive income require the following:
- An initial financial investment – An examples of up front financial investments would be purchasing dividend producing stocks.
- An initial time investment – An example of up front time investment would be. Creating a hit song and receiving residuals, or royalties on a monthly basis.
What Makes Passive income so powerful?
What makes passive income so attractive, is that once you lay a foundation, the residual income get easier build. With traditional active income there is a limit to how much time you can dedicate to working. With 24 hours in day and a general work shift being 8 hours of your day, it’s virtually impossible to find time for more then a second job, not to mention how brutal of a lifestyle that is. With passive income, you are not bound by the time restraint, and letting your money work for you. As long as you are generating enough income you can create as many passive income streams as you like.
The best thing about passive income, is when you don’t have to be at work, you get to actually live life. The majority of us are stuck in a position, where we need to work to keep things in order in our life. Jobs determine: when you go to sleep, when you wake up, what you eat, how you dress, and what you drive. Passive income allows you to spend your days doing what’s most important.
How To Generate Passive Income In The Beginning?
- In the beginning you need active income – Unless you come from a wealthy family, you will need capital to build your passive income empire. Theres no way to shortcut this part, you need to have a primary means of income to get started.
- Be Frugal – Think of this as the time of sacrifice, this may seem unreasonable but, stop spending so much money. Try to find economic ways of entertaining yourself. Cut down on food budgets, try not to eat out too much and cook at home. Here are some yummy ideas of what frugal people eat!
- Create a plan. A big part of creating passive income is having a strategy. Have answers and procedures for every conceivable scenario.
- Determine how much passive income you need – Figure out how much residual income you need to make to live your life comfortably.
- Set realistic short term financial goals – It’s ALWAYS great to shoot for the stars, however creating short term goals that can be reasonably achieved. An example of a good short term goal is saving up for a down payment on a rental property,
Achieving financial freedom is not easy to achieve, but by setting goals, saving, and frugal living you can begin on your journey to residual income. After laying this foundation, by the time you are generating enough income to live off of, you will have definitely earned it.