If you’re tired of the 9 to 5 grind, then passive income could be for you. While not a get-rich-quick scheme, it’s a way to build systems that contribute to financial stability and extra money. It can even support long-terms goals like early retirement. Here’s a high-level look at what it is and how it works.
Types of Passive Income Sources
- Investment Income
This includes individual stocks or mutual funds, interest payments from corporate bonds or capital gains from selling securities at a profit. While they all involve risk, these types of investments can compound and grow over time. - Rental Income
Depending on where your property is, this could be a cash cow. The money you earn can cover the mortgage, taxes, maintenance and other miscellaneous expenses. The best part? You could earn a sweet sum of money. - REITs and Crowdfunded Real Estate
REITs (real estate investment trusts) and crowdfunded real estate platforms allow you to invest in properties without having to buy them yourself. You earn net rental income in the form of dividends without the headache of managing the property. Not bad, right? - Business Income
You earn this money by not actually participating in the operations. For example, you might invest in a restaurant. Others run the daily business while you receive a percentage of the profits. Sweet. - Intellectual Property Royalties
Pen a book. Write a song. Create an online course. You’ll reap the rewards long after the work is completed. - High-Yield Savings Accounts
Yes, this might yield small returns, but it’s a great way to put your money to work.
What are the benefits? There are many.
- Wealth Building
When you reinvest your dividends, save and invest your rental profits and royalties, you’ll steadily create a nest egg that will compound and grow, grow, grow. - Financial Freedom
While this type of capital building takes time, it can supplement, if not replace, your day job. - Time Flexibility
You don’t have to work on this revenue stream every day, which is the beauty of it. It clears up time for you to live your life. - Diversification
When you have more than one income source, it can act as somewhat of a safety net, should your main way of earning a living dry up.
Risks and Taxes
While passive income can and does build wealth, it’s not without risks. Markets may fluctuate. Property values might decrease. Companies that are part of third-party crowdfunding could shut down. You’ll also have to pay taxes, as you must report your earnings. Selling stocks or properties can trigger capital gains.
Passive income has pros and cons. Only you can decide how risk averse or tolerant you are. If this type of investing is for you, the sooner you start, the sooner you’ll create financial security – and freedom.
Sources
https://www.crediful.com/what-is-passive-income/
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