The article was written by Melissa Houston and was originally published on Forbes.
It’s the best kept secret of the rich, passive income. The goal of passive income is to get your money working for you, and the more you have invested, the more passive income you will create. But not everyone knows this.
Creating wealth does require a strategy and discipline. It’s not how much money you make that makes you rich; it’s how you manage that money. And passive income is a popular strategy used among the wealthy.
What is passive income?
Active income is where you earn wages and sales commissions, whereas passive income requires very little labor. Bankrate.com states that passive income comes from a source other than an employer or contractor.
Passive income complements the income you are earning from your primary job. It is ideal to have several streams of passive income set up to protect your primary source of income, should you be unfortunate enough to lose your job.
How passive is passive income?
Passive income is commonly known as a way to make money in your sleep, but is that true? You see social media influencers promoting ways to make passive income by creating digital courses. You hear financial planners telling you to create passive income through your investment portfolio. Others ask you to invest in real estate and rent out that property to receive a rental income.
But what you need to understand is that passive income takes work. Some investments take more work than others, but to think that you can invest and not monitor the performance of that investment is a mistake.
The amount of work your passive income will require will depend on what you have invested. But it is misleading to think that you can check out money management, and even investment portfolios require monitoring, and passive income isn’t really passive.
Benefits of having passive income
Passive income streams can help you with early retirement plans. As the passive income comes in, you can reinvest that income into other interest-bearing financial assets that also produce passive income. Essentially you are building wealth on top of wealth.
The main benefit of passive income is that it creates financial stability in your life. Indeed, money does not buy happiness, but what money does do is provide opportunity, and when you manage your money well, it reduces financial stress.
You have more financial freedom when you have money, and it allows you to be no longer dependent on a paycheck, and you can even retire early if you manage your money well.
Creating passive income aims to create a life where you can live off the passive income made from your investments.
Popular types of passive income
There are many types of passive income that you can create for yourself, and some of the most popular methods are:
1. Rental income
When you purchase a property that you can rent out, not only are you earning money on the rental income you receive, but your rental investment will appreciate over time. When you own a rental property, you need to provide services as a landlord. However, when the money is managed well, you may be able to afford a service manager for the property, increasing the passivity level for this income.
2. Investment income
When you invest your money in bonds, you preserve the initial investment, but you receive interest payments for the money you are investing. These interest payments will depend on the terms and conditions of the contract, but there is a high level of passivity in this type of investment.
3. Dividend income
When you purchase stocks in the stock market, you will receive dividend income on that investment, depending on your buying type. According to Investopedia, dividend income is paid out of the profits of a corporation to the stockholders. When you purchase stocks that pay dividends, you will not only earn money through dividend payments, but your stock may increase in value.
4. Digital courses
Social media influencers often speak of creating digital products to sell, such as courses. There can be much work to create a course on the front end, but it is evergreen with the proper marketing and sales strategy once that course is completed. You can bring in consistent income with that course, and you will need to monitor your sales funnels to ensure they are working and consistently bringing in revenue.
5. Side hustle
Side hustles have gotten very popular in recent years. Side hustles are jobs that you work at outside of your regular 9-5 job. Side hustles supplement your primary income, and you can use that extra and invest it into other types of passive income and get that money working for you.
6. Angel investing
Angel investors are wealthy people who invest their extra money into startup businesses that need capital by providing loans. The angel investor agrees with the business owner, outlines the loan’s terms and conditions, and makes passive income off the interest payments those loans generate.
The secret that wealthy people know is that by building your investment portfolios and creating passive income, you are essentially preserving your capital investment and earning money on that money.
The bottom line is that creating passive income for yourself is a great way to build wealth and secure your financial future. The more money you have saved, the more likely it is to attain financial freedom at an earlier age, and financial independence gives you more time to do things you love to do.
How to Earn Passive Income with Foundation Capital
If you want to generate a sustainable passive income stream, Foundation Capital is one of the most reliable organizations to invest in. Our process has been refined, perfected, and proven over the past 12 years of renting our clients’ assets to the construction industry.
For more detailed information on how to make a capital investment in construction with Foundation Capital, as well as the terms, conditions, and risks, refer to the following FAQs and guides:
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