How To Create Passive Income And Stop Working

How To Create Passive Income And Stop Working

How would it feel if you had income coming in no matter what you did? What if money was coming into your accounts whether you were traveling the world or in your bed sleeping?

It would feel awesome!

This is the power of creating multiple streams of income through a combination of active and passive income.

WHAT IS PASSIVE INCOME?

Passive income is income you receive from any form of savings or investment that you aren’t materially involved in. It’s money that comes in without having to do much work.

Now, “passive” can be a bit of a stretch for certain types of investments, especially if you have to do anything. To be truly passive, your required work needs to be near zero.

The overall goal from your investments should be to create a stream of residual income whether you have a job or not.

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Don’t get too hung up on debating if something is completely passive or not. The real goal is to create multiple streams of income. The closer each of those streams is to being passive, the better. But it isn’t a requirement.

WHY MULTIPLE STREAMS OF INCOME IS IMPORTANT

Almost anywhere you turn in the world of finance you’re bound to hear about why it’s important to diversify your investments.

“Don’t put all of your eggs in one basket, man! That would be crazy!” – Typical Finance Dude

But you don’t often hear about the importance of diversifying your streams of income.

Most people rely on just one stream of income: their job.

Not only is this a dangerous move, financially, but it also handcuffs you to whatever employer is paying you. Sure, you could go out and search for another job, but then you’re just replacing one source of income with another. You still would not have created a more stable income stream, coming from multiple sources.

By creating multiple streams of income, you won’t be relying on one source to provide you what you need. If one of the sources stops, then you still have money coming in from elsewhere.

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Layoffs at work? Sure, that would be a bummer. But if your job is only accounting for 50% of your total income, you’ve only lost half, not everything.

It certainly wouldn’t be fun, but you wouldn’t be in as difficult a situation.

GETTING AHEAD ON RETIREMENT PLANNING

The added benefit of creating multiple streams of income is that you are getting ahead in your preparation for retirement.

In retirement, one of the biggest challenges for most people is converting all of the money they’ve saved into a stream of income. In order to retire, what you really need isn’t a big pile of money; it’s some way to pay for your annual living expenses. You need a way to replace the income you are receiving from your job.

By beginning to create streams of income now, you’ll be getting way ahead in your ultimate goal.

Desire to retire = Need to replace your work income

HOW TO CREATE STREAMS OF INCOME

Now the real fun begins!

There are many ways to create additional streams of income. I’ll go over a handful of my favorites, but there are many more you can potentially pursue.

Real Estate

For many reasons, this is my favorite.

True, this falls more in the category of semi-passive income due to the fact that you’ll have some work to do. But you can offload a lot of that work to a property management company if you’d like, helping to eliminate a lot of the headaches.

Ultimately, I love how you can control the outcome of investing in Real Estate much more than you can with a lot of other investments.

In the coming weeks, I’m going to dive into real estate investing, so be on the lookout!

Real Estate Investment Trusts (REITs)

Maybe you’re interested in investing in real estate, but have no interest in managing your properties or tenants.

To be truly passive in the real estate world, you can invest in what’s called a Real Estate Investment Trust (REIT), which is similar to a mutual fund in that it holds a number of real estate projects. The nice part is that it’s managed by professionals, eliminating your need to get involved.

You also benefit from a typically higher interest payment than things like stocks and bonds, and it is much more liquid than owning actual real estate because you can sell your investment at any time.

Bonds

Good old-fashioned bonds. You give a company your money, they pay you interest for a certain length of time, and then give you your money back.

With bonds, you have to engage in the balancing act of trying to find a decent interest rate that is with a stable company you don’t believe will go out of business.

The only problem is that bonds currently aren’t yielding much of an interest rate, so it can be tough to find ones that look attractive.

High Dividend-Paying Stocks

This can have the benefit of both providing you an income and the potential for capital appreciation.

Dividend Stocks also offer an interest rate much higher than what you’ll find at a bank. But, of course, there is added risk involved.

Annuities

I have a love-hate relationship with annuities. But at the end of the day, if your goal is to ensure that you’ll have a regular stream of income, without fear of a market decline wiping you out, then an annuity could be a good fit.

By giving over a chunk of your money to an insurance company, they will guarantee a certain amount of income to you for the rest of your life. Not too shabby.

Just beware of the expenses involved, and be sure to check on the financial strength of the company you’re working with.

Air Bnb

The “Sharing Economy” has exploded over the last decade. From Uber to Airbnb, people are finding ways to make money off of their existing assets.

Why not rent out unused space in your home or apartment? It could be a fun way to meet new people from around the world, and to earn a decent chunk of change in the process.

Sell Products Online

In the age of the internet, anyone can create accounts at any number of commerce platforms and sell almost anything.

If you have a product idea, you can set up an account on a site like eBay, Amazon, or create your own online storefront with a site like Shopify.

You can even upload your own designs ideas to sites like Redbubble. If people buy any items that have your designs on them, you’ll get a cut of the profits.

Create An eBook

Do you have knowledge of a certain industry, task, or skill that others would like to learn about? You can create an eBook and sell it online.

The trick with this is marketing it, which can end up taking you some time. But once you get your eBook listed somewhere with high web traffic, you can sit back and watch the checks roll in.

Peer-To-Peer Lending

In recent years, there has been an explosion of peer-to-peer lending companies like Lending Club. These sites have helped to eliminate the need to go through the traditional bank models for lending money.

Because of this model, it has helped people earn higher returns on the money they are loaning to others (their peers).

But don’t think there isn’t risk. It’s just like any other investment you make, and needs to be properly evaluated.

MORE TO COME

This list is just a handful of examples of how others are earning income outside of their normal 9-5 jobs right now.

So, now that you know some ways you can begin to build multiple income streams, you can begin working toward your Financial Freedom Number one stream at a time.

For those interested in learning how to get into the world of Real Estate investing, you’ll want to tune in next week when I go through the steps I take to find my investment properties.

Capably Yours,

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10 Tools to Simplify Your Financial Life
10 Tools to Simplify Your Financial Life
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