What Is Passive Income – Money Viewpoint

Most people struggle financially because they only have one source of income. Primarily speaking the money most people earn is through a job after one or two weeks of work and then they spend it. There is another way of getting paid and that is by doing work once that you get paid for multiple times, also called passive income.

Getting paid over and over again for past efforts and/or capital investments is what passive income requires. It’s not free money, it doesn’t just show up out of thin air. The first step of generating passive income is by creating value for others which requires a significant amount of work in the first place. The work done is often not just in the industry the income is generated from but in self-education, networking, and others areas of time investment.

Earned income is what you receive from your job and is limited in the amount that you can make, especially for those being paid hourly. Even if you are paid commission you are limited on how much can realistically earn because there are only so many hours in the day and you must start over every single pay period. Contrast that with passive income where you can do work today, this month, year, etc, have it pay you multiple times and every new asset you create adds to what you’ve already done.

Using some of your free time to build passive income streams helps create near certainty in your financial life. Imagine earning even just a couple thousand dollars each month that you know you’ll receive for 6 months, a year, or even longer. This is how you create the financial freedom that we all are dreaming of achieving.

Passive income is great at helping you meet your basic living expenses but doesn’t have to stop there. As you continue to snowball your income it can get to the point where it vastly exceeds any earned income you are making allowing you to purchase big things you never thought you would be able to.

Categories of passive income

Broadly speaking there are 3 types of assets you can obtain to earn passive income.

Buy: These types of assets include real estate, dividend stocks, annuities, and bonds.

Create: Creating or building of an asset for sale would include courses, products or services, websites, social media followings, songs, and others.

Contribute to: Sometimes, particullarly for those just starting, you'll find assets that you want to be part of but either cant afford yourself, yet want to be part of in some aspect so you add some of your own fudns to the project. These can include limited partnerships or a business.

For a list of 26 different passive income ideas look at this article.

What do I do if I don’t know anything to get passive income

The most important thing to invest in is your education. Gaining your understanding of how money works and then pairing that with your interests to create your game plan is crucial for long-term enjoyment. The last thing you want to do is create another hamster wheel of work for yourself that you don’t enjoy.

If you have been doing this for a long or short while and want passive income now then you can go about that in a couple of ways.

Passive income for the impatient

These are just some examples of ways to earn passive income but none of these are intended as best or required. That being said if you want income right away then getting dividend stocks, or securities may be for you. It’s very easy to create a brokerage account and purchase stocks that pay dividends.

Slow and steady

There has to be an inclusion here regarding real estate because it has been around as “the” passive income source for so long. It has created more wealthy people than any other and is often included alongside other sources simply because it’s not something you can rush the work on.

While you can buy and sell stocks as much as you want, or write course articles, and make tons of songs all day long, there are only so many real estate purchases you can make at one time when starting to build passive income.

Other ideas that fit into this category are things that require your effort daily like blogging, web courses, and social media channels.

How much work is required

First off if this is your mindset going into it then you have a counterproductive viewpoint. More specifically if you are only looking at this in the light of “how can I make money” or “what’s the least amount of work I can put into this thing” then you aren’t focusing on the correct area. Like anything you have learned in the past a lot of effort on your part goes into learning the concept, practicing it, and then putting it into practice.

That doesn’t mean it will take forever, it also doesn’t mean you have to spend 10 hours a day trying to figure it out. It’s a marathon, not a sprint.

Passive income myth

Marketing efforts have made it sound so easy and no work required but that is not the case with anything in life. Passive income is no different.

What is true is that the work needed to put something into place is done upfront, and then afterward you only need to maintain it. Sometimes that means checking regulations, making sure your corporations are set up properly, or you keep in touch with clients, working out tenant complaints if you are a landlord, etc.

Passive income taxes

There are a lot of tax codes so it shouldn’t surprise you to hear that it depends on what type of passive income you receive on how it’s going to be taxed. Check with a tax specialist for your situation to find out exactly.

How to protect your income and use your money twice

Many companies and wealthy individuals purchase cash-value building life insurance policies because of the protection it offers them. What I mean by protection is unrelated to the death benefit. It allows them to keep control of the money they earn and use it multiple times. Many cash value policies are also tax-free if used correctly. If used in a business it can be considered an expense thereby allowing a struggling business to continue operating in the hopes of turning it around.

Combine this with passive income options and you can see the power this provides you the individual and a business.

Whatever your passive income financial goals are, we can help. Contact us today.