Are you dreaming of living a luxurious lifestyle someday? Well, sticking only to your 5 to 8 job’s salary will make that quite challenging. However, if you have steady passive income streams, this dream might turn into a reality soon.
Investing in passive income is one of the best ways for you to earn the financial freedom you dream of. To find out more about why you need it and what it is all about, continue reading this article.
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What is Passive Income?
Passive income refers to a personal finance term that defines incomes that continuously come your way with little to no effect. It might take some effort to get it started, but once it’s fully set up, it will provide you with a steady stream of money.
There are different types of passive income. The following are the most common ones:
- Dividend Stocks (Related: How to invest in stocks)
Dividend stocks are one of the most effective ways to earn a passive income. Dividend stocks are usually offered by established companies that distribute their earnings to shareholders.
These dividends are usually paid on a per-share basis. For example, if you have 50 shares, you will get $10 in cash. The more stocks you own, the higher your dividends will be.
However, take note that dividends are not guaranteed, and they are at the discretion of the board of directors. This also means that they can reduce or increase these dividends at any time.
- High Yield Savings Account
A high yield savings account refers to a type of savings account that usually pays 20 times more than the national average of a traditional savings account. This new category is mostly the result of the advancement of internet-only banks.
Suppose you are planning to put $5,000 on a savings account. If you put it on a traditional one with a national average of 0.10%, then you will only get an interest of $5 in one year. However, if you put it in a high yield savings account, you’d earn more or less $100. The bigger you plan on saving and the longer you plan to keep it on your account, the more interest you will earn.
However, just like with other types of passive income, this also comes with a trade-off; moving money from your savings account to your checking account can be quite troublesome. Since your two accounts are in different financial institutions, the time of executing transactions might be longer. Plus, there might be more interbank fees that you will be charged with for every transaction.
- Rental Properties (Related: How to invest in Real Estate)
One of the most basic necessities of humans is shelter. Hence, it’s only natural that investing in real estate, such as rental properties, can provide you with a steady stream of passive income.
There are several types of rental properties. These include the following:
- Vacation Homes:
These types of rental properties are usually situated in attractive tourist areas. These properties can generate a lot of money but take note that they are highly seasonal, so you might not get a lot of income during non-peak months.
- Single Family Homes:
This is probably the most common type of rental property. As its name suggests, these are properties rented out as a whole by an individual or a family.
- Multi-family Homes:
Unlike single-family homes, these have several units that can be individually rented out.
If you are worried about not having enough time to maintain a property and look for tenants, you can always hire a property management company. They will take care of the property maintenance for you. Although it might be an added expense, it is reasonable given that it lessens your stress and gives you more freedom of time.
However, acquiring a rental property requires a significant amount of investment. You may need to take on a mortgage or put in your entire life savings into buying a property. Plus, you need to invest more money to make sure that it is according to the local rental property standards and is safe for tenants.
- Annuities
Annuities are long-term investments issued by insurance companies. These are designed to help you create a retirement income. There are several types of annuities, such as those with legacy planning tools, income protection, or spousal protection. The nice thing about it is that it can be tailored according to your needs and financial goals.
However, it may take some time before you get the benefits out of this investment. But, it’s a good choice if you are someone with little to no risk tolerance for loss regarding passive incomes.
- Real Estate Investment Trust (REIT)
Real Estate Investment Trust, better known as REIT, is a type of real estate investment design for individuals who are not accredited investors. Most REITs are publicly traded, similar to stocks, making them highly liquid.
It is considered a proven and trusted form of passive income because it generates a steady income stream. You can start investing in REITs for as low as $500, and there are plenty of available options for you to choose from.
- Affiliate Marketing (Related: How does Affiliate Marketing work ?)
Over the years, affiliate marketing has become more lucrative as more people turn to the internet for their needs and necessities. This is the practice of partnering with a company to become one of their “affiliates” so that you earn a commission for every product that you help them sell.
This form of passive income works best if you are running a blog or website on the side. You don’t necessarily have to invest a lot of time in this type of marketing. All you have to do is put it out there through perhaps a blog or an ad on your website and wait for people to click on it and buy a product.
However, take note that affiliate marketing may not be as lucrative as other types of passive income. But, what’s great about it is that you don’t need to have any capital at all.
- More Financial Margin
Financial margin refers to the gap between your expenses and income. If you have way more income coming in monthly than the total of your expenses, then the more positive financial margin that you have. If you have more financial margin then that means that you are also better off financially.
Obviously, a passive income will help you with this since it generates additional money that can be added to your monthly incoming, making your financial margin much better. For example, all of your monthly expenses totals to $2,000 and your monthly margin is $500. In that case, you are doing well financially but if you have another $500 from your passive income then that means you’re doing even better and life is much better.
- Early Retirement
Many people work hard so that they can retire as soon as possible for them to enjoy the fruits of their labor. Unfortunately, there are many who have to wait until the very last year of retirement age because they don’t have enough financial cushion to depend on.
However, having passive incomes will help you be able to retire early without worrying about financial problems. With a portfolio of passive incomes from investments or business on top of your pension, you will have more than enough to retirement sustain the lifestyle that you want.
Reasons Why Passive Income is Necessary
Still wondering, why you need passive income in order to enjoy a luxurious lifestyle? Here are some of the top reasons:
- It Gives You Freedom of Time
One of the most valuable things on earth is time. However, if you invest all of your time in earning money by doing different jobs, you might miss out on other important aspects of life, and unfortunately, you can never turn back time. This is why investing in passive income is crucial because it helps you achieve freedom of time.
Passive income will lessen the burden of needing to meet your financial obligations by working. This way, you can get more time flexibility which you can allocate in doing things that you are passionate about or fostering your relationship with other people.
Even if your passive income does not entirely cover all of your monthly expenses, as long as it does for some, then you are already doing well in your pursuit of financial freedom.
- Mitigate Stress and Anxiety Due to the Uncertainty of the Future
Have you ever felt stressed and anxious about whether you will be able to make ends meet in the following months? If you have, then you are not alone. In fact, a lot of people are experiencing this type of scenario, and it can feel like a never-ending cycle and makes you wonder whether you are born to pay bills and work as a corporate slave simply.However, if you have a passive income stream, your stress and anxiety can be significantly alleviated because you will be able to save money in case of an emergency. This emergency fund can buffer unforeseen financial events so that you will not struggle that much.When you are less stressed and anxious, you tend to be happier and motivated, increasing your quality of life significantly. Plus, it can help you build financial momentum so that you can get the luxurious lifestyle that you want. - It Allows You to Follow Your Passion
Many people are forced to let go of their passion because they need to be practical and work to fulfill their financial obligations. But, a good stream of passive income will help you indulge in your passion regardless of whether it’s arts, music, or travel because you will not be tied up to a never-ending cycle of bills and payments.
Moreover, passive income will also help you pursue an active income in what you are passionate about because even if it would not pay much, at least you can rely on your passive income to free up some of your bills.
- It Gives You the Freedom to Travel
Suppose you have always wanted to travel around, but your 8 to 5 job is keeping you tied on a desk. In that case, a passive income can be a solution. With a steady stream of passive income that can cover your bits, you can pick up your backs and hit the road.
Most passive income does not require you to be physically there for you to manage it. For example, you can manage your stock investments from anywhere around the world as long as you have a secured internet connection. Even if you invest in real estate, for example, you can always hire people to manage the property for you and oversee them using the internet.
- It Gives You Financial Growth
Since you will be getting more time to do other things when you have a steady stream of passive income, you will now have more time to think about other money-making options to help you achieve the luxurious lifestyle you have been dreaming of.
It’s possible for you to have more than one form of passive income. In fact, it is even better if you are diverse so that if anything happens, you still have a back up plan. You might think that juggling many passive incomes all at once is overwhelming, but it can be manageable if you start it one at a time. Once you have fully established one passive income, you can move on to the next one and repeat the cycle.
How to Pick the Right Passive Income For You
With all the different types of passive income, how will you know which one will help you achieve the luxurious lifestyle that you dream of? Here are some tips for that:
- Research
Just like with everything else, building a portfolio of passive income requires extensive research. Look for a potential passive income that you think fits your skillset and financial goals and figure out how to get started.
Research on how much capital you will need. It will also help if you try and find out the possible obstacles you will face. This way, it will be easier for you to anticipate problems in the future.
- Look at Your Current Financial Capacity
When thinking about building a portfolio of passive income, you need to consider your current financial capacity. Do you have money that you can put into investments, or do you need time to save up? Answering this question from the get-go will help you identify which passive income methods are feasible for you at the moment.
- Create a Financial Plan
A financial plan will help guide you in achieving the financial freedom that you have been dreaming of. It will also assist you in deciding what type of passive income will best help you with your financial goal.
When creating a financial plan, make sure to be as detailed as possible. You can also try breaking down your financial goals into mini goals so that they are less overwhelming.
- Be Smart With Your Finances
There are several ways to earn passive income with little to no capital needed. However, you might need to have bigger capital for lucrative passive incomes, hence why you should be smart with your finances.
You can do this by learning how to budget and make sure that you allocate money from your main source of income into savings. This might be a little challenging to do, and it requires a lot of perseverance and self-control, but it will eventually be worth it.
In addition, being smart with your finances also means that you have to manage your expenses well. There are several ways for you to do this. For example, if you have an unnecessary subscription, cancel it and find a free alternative. You can even lower your electric bill, for instance, by making it a habit to turn off lights and unplug appliances when it’s not in use.
Final Words
There are so many good reasons why you should invest in passive income, especially if you want to live a luxurious lifestyle. Aside from its financial benefit, it can significantly help your mental and emotional health. Plus, there is surely a passive income for your skill and financial capacity with many available options.
You can start with something small and eventually make it grow so that it helps you achieve your financial goals. It would also be a good idea to have multiple passive income streams for diversification. Overall, investing in passive income streams is one of the proven ways that will help you achieve the luxurious lifestyle that you want.
Related: 10 Books you need to read in order to achieve financial freedom
