Do you know that the fastest way to achieve financial independence is to create a passive income stream?
Passive income makes money work for you, not the other way around. That means you can do what you want without having to worry about the month’s bills.
You can spend more time with your family, or even explore other opportunities to generate a 3rd, 4th, and 5th passive income stream. When you start to have several income streams, you are on the fast track towards financial freedom.
What is passive income?
Passive income is income you generate even while you’re not actively involved in it. A passive income source makes money for you while you’re, say, on a hammock in Maldives bathing in the sun while sipping juice.
An author, for example, spends huge time writing and scratching his head in search for that wonderful plot. Once his book starts raking in royalties, passive income begins and his bank account magically grows by itself. The author, then sells his story to a movie producer, opening up several other income streams: profit shares, television interviews and possibly writing workshop requests from all over the world. Slowly, then all at once, the deluge of cash comes.
Passive income is the companion of active income in building wealth. Your active income is the income you earn by actively doing something such as your job.
But even if you already have a passive income, you can still continue earning active income while working as an employee. Combining several income streams should be your master plan –your escape route towards financial independence.
Examples of passive income ideas
There are two ways to make your property an investment: buy it at a low price and wait for the value to appreciate before selling; or let it be used by someone else at a recurring cost. That recurring cost, called rent, is your passive income.
If you have more than one property, you might want to have the extra property rented to offset the cost of maintenance, and earn extra at the same time.
Factors to consider when buying rental properties
Mortgage and maintenance costs .If you’re paying huge amount on mortgage and maintenance, then you might have to adjust your rental rates. The problem is that there might not be any market for the rate that you are offering.
Occupancy rate.Your property might not be occupied right away. You will have to wait for months before you earn your passive income. This will require you to pay for the costs of owning the property.
Other rental property ideas include rooms or apartments for rent, party venues, storage units and even building units for small businesses.
Stocks are shares of publicly listed companies which you can own a piece of through any legitimate stock broker. Some of these companies are generous when it comes to sharing their profits through dividends. If you directly own shares of a company, you will be on the books come dividend payment time. Once you receive the dividend, you may withdraw it or reinvest it. Note, however, that investing in stocks requires some degree of knowledge especially in picking companies that can withstand the tests of time.
Investing in company preferred shares
Every once in while publicly traded companies would distribute preferred shares which can be bought through a stock broker account. Preferred shareholders are prioritized if the company needs to liquidate assets or when it distributes dividends. They also get a fixed dividend rate (for example 6% a year) as specified by the company. The drawback is that this may seem a modest rate if you compare it to the growth potential of a pure equity asset like common stocks.
Part ownership of a private company
Privately owned smaller enterprises need capital to expand. That’s why they go to the public and ask for money in exchange for a monthly profit share. Examples are farm owners who need more inventories of livestock to accommodate bigger orders from their regular customers. If you choose this kind of investment, carefully examine the company’s overall health and the kind of management it has because these things can make or break your potential passive income stream.
A vending machine is your salesman who is not ashamed of selling drinks or cigarette packs to bystanders in airports, train stations, and even libraries. Vending machines are not that expensive to acquire, although the place you’ll be renting might be. If you’re too shy to side hustle, a vending machine can do the job for you. You simply visit this buddy of yours to collect your money.
Many of us tend to shun peer-to-peer lending as a corrupt practice but this is exactly the same thing that credit card companies are doing, only in a much bigger scale and in a more corporate environment. Be guilty if you charge outrageous rates. Otherwise, it’s only a fair practice to put an interest rate on your money because money has time value. If you don’t tap on it, its value will shrink.
Nowadays, there are legitimate peer-to-peer investing companies (e.g. Prosper and The Lending Club) which allow you to open an account and invest a relatively smaller amount of money. This money is lent to qualified loan applicants in exchange for a certain ROI.
Getting a passive income stream involves investing your money, which exposes you to a certain level of risk. However, as an individual who seeks financial freedom, you need to have an aggressive stance on building wealth and that means welcoming risk where rewards are worth it.