Most of us have a job where hard work is expected and necessary. We offer our knowledge and/or labor to the company we work for in order to get recognition, satisfaction and compensation in return. Although this is the way most people make money, the minute we stop working, the income stops.
On the other hand, a popular idea that’s been floating around the internet is passive income. The idea of it is that money is being earned with or without our involvement. Once it’s set up, the recurring income will come continuously.
Anyone can quickly see why this idea is popular. Here are three extremely good advantages:
If your passive income is higher than your living expenses, then you free yourself from the daily grind of working for someone at least 8 hours a day. You can enjoy your life and do what you want, while earning enough money to sustain your lifestyle.
To borrow a popular term from investing, passive income provides diversification. An extra income stream provides an extra layer of safety for you and your family. Nothing is a guarantee in life and unexpected events happen. You may lose your job or the money making opportunity might turn out to be a total scam. The more avenues you can earn money from, the more financially secure you are.
Passive income doesn’t stop coming when you stop working. Even if we love our careers and want to work 7 days a week, there comes a time when we need to retire. At that point, our income from our jobs will end. It doesn’t matter how valuable you were to the company. If you stop working, they will stop paying you.
Passive income on the other hand works even without you thinking about it. Even if you retire, the money will keep coming to you.
Creativity is the most effective way to generate passive income. All it takes is some thinking and you could be on your way. Here are a few popular passive income streams that we are all familiar with to help you get started.
Many companies distribute money (otherwise known as dividends) regularly to share holders to attract investors. In order to take advantage, all you need to do is buy the individual stocks of the company or own the mutual fund or index fund that holds the company stock.
Perhaps the most common of them all, interests earned on any financial accounts are really another form of passive income. You literally put your money in your account and watch your wealth accumulate. With the interest rate at 1% even with high yield online savings accounts, you might need to have a large sum in your account for the interest to be meaningful.
Making a Timeless Product and Selling It
Many people become rich because they created a unique product that they own the rights to. An author that gets royalties from a book that was written; a creator collecting licensing fees for an invention; and a singer making money from every CD sold are all good examples of this. Once it’s created, money flows to you as people have a need for the product.
There are many programs out there that allow you to make money off the efforts of people you refer. This type of scheme, sometimes also referred to as a pyramid scheme, got a bad name many years ago. At one time, many fraudulent companies that had no real business model used this scheme as a marketing tool. They would advertise the benefits of making money, while asking you to pay an initial fee to sign up. Once they had a bunch of people falling for the trick, they would close the business. Many people either lost money or heard of these stories, so they are skeptical whenever they see a company rewarding people using this scheme. However, if the company you build your network with has a legitimate product, it can be a powerful way to make passive income.
Many people think blogging is passive income but it really isn’t. Those who regularly read blogs know that many bloggers spend hours every day thinking and writing content, as well as managing the blog layout amongst other things.
One incorrect perception about passive income is that it is effortless. Looking at the examples of passive income above can explain this best. For dividends and interest to be significant, the principal (money that’s put in the financial account) must be pretty big. In order to generate this big base, you have to work for it. With any product, a lot of effort needs to be spent creating it. With network marketing, hard work needs to be put in to build the network of referrals. So if you think passive income is effortless right from beginning, you are misinformed.
The first step of generating passive income starts from having the right mindset. You need to be:
- Willing to think of ways to make money that may or may not be published by others.
- Understand that although the ultimate goal is to work less and still make enough money to sustain your lifestyle, it involves hard work at the beginning.
- Be on the lookout for ways to add an additional income stream.
- Understand that many of the ideas aren’t going to work.
- Have the confidence that you can do this because many people are quite successful at it and end up living a dream.
- And most importantly, have fun doing it.
If you have what it takes, start now. Spread the word about passive income and continue looking for ways to increase your income streams. One day, you might just be able to tell your boss that you are leaving without financial worries.
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence. They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.
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