In a world where everyone’s striving to be financially independent, the idea of passive income is a hot topic. The idea that you can be sleeping and making money is too good to be true, but for some it really happens. The great thing about passive income is that you can earn wealth with little constant effort. When you create a passive income stream, you gain a reliable financial income source and often have the capacity to focus on things you love, family, and anything else that doesn’t require constant effort. In this article, we’ll discuss what passive income is, why it’s important, and how you can create your own income stream so you can take care of your future.
What Is Passive Income?
Passive income is money that one earns with little effort involved after initial setup. Passive income is the opposite of active income, which requires that you trade your time for money, like a typical 9-to-5 job. Passive income is great because it has the ability to accrue money with minimal effort on an ongoing daily basis. Although there might be an initial time/money/knowledge factor in the beginning, passive income sources won’t take much effort moving forward compared to your “real job.”
Common examples of passive income streams are rental properties, dividend stocks, digital products (ebooks, etc.), and online businesses. Not every passive income source is truly hands-off, but if set up correctly we can develop a new source of revenue that will provide cash flow effectively with limited interventions as the manager.
Passive Income is Important
- Financial Liberation
The greatest thing about passive income is that you live life on your terms. Whether that means traveling the world, opening a business, or retiring early, passive income is a means to achieving your own financial and personal goals without being tied to a paycheck.
2. Wealth Building
When earnings from passive income are reinvested, your wealth will accumulate much quicker than you might expect. Over time, compounding will take care of the rest and you will be amazed at how exponentially your net worth grows.
3. Security in Uncertain Times
If you lose your job or there are economic problems (e.g. a viable, healthy business fails), having many income sources will provide a buffer. Passive income will meet your needs just when your primary source of income is stripped away. Woodwork jobs will not look so appealing anymore…
4. Time Compensation
Because passive income is not built directly upon time worked, you could easily earn more without having to work additional hours. Striving for balance is obviously quite limited by traditional hourly employment. Having passive income is a gearing mechanism for work-life balance and personal freedom.
Common Passive Income Opportunities
- Real Estate
Rental properties is one of the longest-lasting, traditional methods of passive income. When you buy a property and obtain tenants, you will generally have a recurring cash flow each month. Rental properties typically appreciate over time too, meaning you will not only be gaining passive income, but potentially long-term wealth also. Many investors solicit the help of property managers to help with the day-to-day activities, in turn enhancing the passive nature of this investment! - Stock Dividends and Investment Portfolios
Setting up your investments to earn dividends through stocks, mutual funds, index funds and REITs (Real Estate Investment Trusts) can provide a consistent income amount each month as long term passive income. Like all passive income investments and strategies, dividends through stocks require some research and possibly capital funds to start, but once your portfolio is acquired, future dividends and capital gains will provide you with consistent passive income. - Online Businesses and E-commerce
You can create passive income through selling digital products such as e-books, online courses, print-on-demand merchandise supplies and software. The business model is simple: create your product one time and sell it perpetually. Online platforms like Shopify, Amazon and Teachable have made it easier than ever to monetize your knowledge and creativity! Many people also use affiliate marketing to build passive income by promoting other people’s products and receiving a commission as an affiliate. Blogs, social channels and YouTube channels are other popular ways to create passive revenue.
- Royalties from Intellectual Property
If you are a creative professional, you can develop passive income from things like music, books, photography, and patents. To illustrate, musicians will continue to earn royalties every time their songs are streamed or utilized commercially. Author’s books will continue to produce income into the foreseeable future. - Peer to Peer Lending and Crowdfunding Investments
You will find that some companies like LendingClub, Fundrise, and Prosper allow you to “lend” money to people wanting to borrow, and you can also invest in real estate development projects and earn interest or profit share. This is generally a riskier income avenue, but it may produce returns that are higher than average. - Automated Online Tools and Apps
If you have an education in software development or you can partner with someone who does; you can create automated tools, plug-ins (for example the WordPress marketplace), or mobile apps as a source of revenue. Most of the time once you have created and published the app, all you will have to do is make updates periodically and it will continue to generate income.
Establishing Your Passive Income Plan
- Assess Your Skills & Interests
Select an income stream that is either built around your skills or interests to improve your chances of success and reduce potential burnout.
2. Think Small
You do not need to have a massive amount of money to start out. Many great passive streams of income started off as part-time jobs that evolved into full-time income. Start by starting one income stream and expand once your financial or time resources improve.
3. Diversify
Like investments, passive income strategies also do best from a diverse amalgamation, multiple-income streams will allow you to spread your risk and also help you keep you financially afloat should any stream underperform.
4. Automate & Delegate
The more you are able to automate or delegate, the smaller your work becomes and the more your passive income will grow. Use tools, create or hire a virtual assistant and/or hire a management personnel to easy your workload.
5. Reinvest Profits (or, use your profits)
When you reinvest your profits back into your own works with new stream investment, improved tools or even act as a compounding mechanism by using your profits as a new income stream will help increase future wealth.
Problems and Misconceptions
Hopefully, you can see that even though passive income can be glamorous, it’s not completely effortless. Many passive income streams involve a considerable time, money, or time and money investment. In addition to this, there is always the possibility of failure, or only slight revenue. Therefore, do your homework, expect realistic outcomes, and realize, it will deduct months or years to build a functioning passive income, not days or weeks.
Final Thoughts
Passive income is not a way to get rich quickly. It is a plan to obtain wealth and unlock the door to financial independence and freedom. Once you take your existing skills, money, and creativity to develop something that generates passive income, you can create streams that allow you to earn money 24/7. Whether you are looking to earn additional income to supplement your job, retire earlier, or start a legacy to be passed down to the next generation or generations, passive income is an avenue to follow where your money works as hard as you do for it.
