If you feel like getting rich by working only one job is impossible, you’re right. Millionaires usually have a host of income options at their disposal, including a full-time career. If you want to build that kind of wealth, you may have to find ways to make your money work for you as hard as you work to earn it.
Fortunately, identifying options is not difficult, and you may be able to get started today. Follow these tips to understand how passive income works and how you can build wealth without having to labor for every dime.
Active vs. Passive Income
Most people earn the majority of their money with a regular job, which is a type of active income. Active income means that you have to work for it actively; otherwise, you don’t make any money. If you have an hourly wage or a salary, you’re earning active income.
Passive income is a little more complicated. It’s money that you make without considering how much work you’re doing for it right now. You can even get passive income by investing in a life insurance policy. Even low-income life insurance can help you generate passive income. For example, if you invested a lot of work into making guides you can sell online, most of the income that you get after the fact is passive.
Types of Passive Income
Some income is completely passive, meaning you put in almost no time at all before you start earning. This type of passive income involves things such as:
• Savings accounts
• Certificates of deposit
• Other investments
Note that not every passive income stream is totally passive, which means that you may have to do a little work to keep it going. Running a website that earns ad revenue still needs a little upkeep, even if you’re not adding new content. If you own properties to rent, you need to spend time maintaining them and handling tenant concerns.
Benefits of Passive Income
Passive income has a variety of benefits. Although you may not be able to tap into all of them at first, you can start a path toward achieving each one in time:
No work needed: You don’t have to spend all of your time working to keep earning.
Income security: When you have more than one income source, you’re not left without money if you lose your job.
More choices: Since you can earn passive income almost anywhere, you’re not limited to the same job and region you live in now.
Retirement assurance: With the right approach, you can eventually build enough wealth to retire, maybe even earlier than expected. Retirement may be the end of work for most people, but it doesn’t have to be the end of income. Passive income means that you can keep earning money your entire life.
Building Incremental Wealth:
The key to building real wealth for the long-term is compound interest. That means you keep earning interest on the money you put in, as well as the money you earn. For example, if you put $50 in a savings account and earn a 5% interest rate, the next year you’ll have $52.50. The following year, assuming that you have the same interest rate and total amount, you’ll earn even more.
Of course, not all passive income options involve earning interest, including improving the value of your assets through appreciation. If you buy a home or a piece of land and hold it, even if you don’t rent it out or live in it, it will probably increase in value over time. When you sell it, you get a return on your investment that you can use for other projects or investments.
Some incremental income options pave the way for you to add other passive income streams. Selling knitting patterns online is a passive income stream, but you won’t earn interest from it. On the other hand, you can invest the money you get from those sales, so that your money produces for you as well.
Passive Income Ideas:
Since passive income can be earned in so many ways, you may not be surprised that there are nearly unlimited options to help you get started. Investments are the most obvious. Even if you have only a few dollars here and there, several platforms are designed to allow you to invest in stocks based on your spare change. Feeling overwhelmed by the options? Start with a high-yield savings account and build up from there.
If you’re able to buy property, you can create a predictable income stream. Some investors get started by purchasing fixer-uppers, making upgrades and flipping them for a much higher price. Others buy a home, rent it out, and use the rental income to pay the mortgage or finance other investments. You can even rent out a room in your home or offer other assets for rent, such as a car or a boat.
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How to Get Started?
1. Choose your limits.
Before you start selecting income streams, be sure to figure out your limits:
• How much time can you put in?
• Do you have money available to invest?
• Do you have the experience needed to make it a success?
• How much money do you need to earn?
• Do you need to earn money right away?
The answers to these questions will make choosing the right income options easier for you.
2. Identify possible income streams.
Once you know your limits, you can identify income streams that fit within them. For example, if you don’t have a lot of time to devote, you might want to stick with investments or income based on work you’ve already done. If you have plenty of extra time but not a lot of money, monetizing your skills and hobbies might be a great way to turn them into cash.
3. Get experience.
Although you might feel a little inexperienced at first, you’ll get more knowledge the more you try. Start slowly if you need to, but keep in mind that you’ll build confidence over time. Be sure to learn from your mistakes as well as your successes. Before you know it, you’ll be investing in new income streams on a regular basis.
Passive income is one of the best ways to build wealth, simply because it doesn’t require you to work to keep earning. When you understand the benefits of passive income and the different options available, you can find ways to grow your income incrementally. Learn more about generating wealth with the following resource by Renovo Financial.
This infographic was created by Renovo Financial, a provider of single family investment loans