Passive income? The basics
The ‘rat race’ popularized by the ‘Rich Dad Poor Dad’ guru Robert Kiyosaki it is what most of us find ourselves in when we have to get up every morning to go to work.
Although many of us may be happy with this situation, very few of us realize what we are doing with our lives and think that there might be a better way to make a living and ‘get by’.
The job essentially consists of selling your time for money at a fixed rate, which is your salary. For the economy to function as a whole, the employer buys your time and gets more out of it than it is paying you for, so the old adage applies: “You, as an employee, are working to make your employer rich.”
To begin breaking free from this ‘linear’ method of earning a living, you must learn to supplement your income with ‘additional passive income streams’. Additional, because they can be additional to their salary and liabilities because they ‘take care of themselves’ and work in the ‘background’ of their lives.
Passive income usually involves a bit of work to get established, and then you can build a regular income (which can be forever!) by doing a bit of “work” to maintain it.
The best, though not the simplest example of passive income is renting a property. The drawback to this is that it has a large initial capital outlay. Real passive income ‘streams’ start with no outlay of money and build up into substantial ‘rivers’ of income over time.
The idea is that when you rent a property, the tenants pay you rent on a regular basis, so you can calculate how much you are going to earn each month. This is fixed passive income. The initial “job” is that you need to set up the rental property with furniture etc, decorate it, and then advertise it.
As a bonus, if the real estate market is buoyant, you’ll get a capital appreciation on the asset in addition to getting the rent, so this is doubly good. However, capital appreciation is not part of the passive income equation.
As stated above, you will need to do a bit of work to keep the project going: replace furniture, pay bills, and maintain the property, but overall, the work is minimal; The important thing is that it does not require continuous attention, so you could go on vacation and still earn rent on your property. This is the real benefit of passive income: it works when you don’t!
Another example of passive income is buying and selling stocks and shares. Now I know this involves risk (as many passive income businesses do), but the idea is simple. Buy stock in a solid company that you’re pretty sure will be around for years to come and hold on to it.
The important thing to learn here is that the passive part of the income is any ‘Dividend’ paid by the shares, not the increase in the value of the shares. As in the property example, there may be a substantial increase in the ‘Capital Appreciation’ part of the equation, but the passive part is in regular dividend payments. These will vary, so this model is not as fixed as the rental example above.
Both of these examples require a lot of money up front, but they are not the only examples.
Now that you know the term “passive income” when it comes to money, you can start thinking of ways to earn money without having to “work” for it!