We often see people buying new cars, bikes, or new homes. Most of the things people buy are leveraged by loans or debt. They buy these things just to satisfy their envy from other people when they see them purchasing such products. But the real rich people do not work like this. They focus on something more important to achieve their desires. In this article, you will learn about Passive income. How can it change your life? How can it make you wealthy so quickly you never know? This article helps you to think whatever you are doing for a living is to make you wealthy or not?
This article is all about Passive Income and how to create sources of passive income. Before going in detail let us quickly understand the term income. When you receive money from your work, what-so-ever it may be, it is termed as income.
There are two ways of earning – Active Income & Passive Income. Whatever you are bringing in from your job is not your passive income. Because it comes with your active participation in your office. (Decoding your salary click to read)
We all are so busy in our day to day life that we live the same kind of life so long in our life. In our busy lives, we ignore or postpone necessary activities. Most of us are running behind the money although we never reach out there.
Currently, we are living in a tuff situation with COVID-19 where government-imposed lockdown. Several companies are laying off their employees. People are jobless & there is no earning for them. But to handle this kind of situation in the future only passive income can help us.
If you look rich people around yourself and see the one common thing. You will notice a considerable portion of their income is coming from the passive type.
Before going directly to our main topic, let us first understand how different incomes are earns. There is 4 main kind of working people – Employee, Self-employed, Businessman & Investors.
Employees and Self-employed people earn by active participation in their work. If they go on vacation or take a day off there will not be any income for them for that period.
But businessmen and Investors earn without any active participation. Businessman creates a system and hires people to work for them, that is how they earn. While Investors put their money in systems generated by businessmen. When a business becomes successful, they earn income through Dividends or by capital appreciation
WHAT IS PASSIVE INCOME?
It is that income which you earn without any active participation towards your work i.e. the income which can be received while sleep or on vacations. This type of income is received with the help of asset creation. That helps you to free up your valuable time to complete other principle activities.
It is other than your regular income from your Job. Passive income is not so easy to earn. If you invest today you may sit idle for so long without any earnings. But once it starts you need not to work further in your life. You may get retire from work very soon.
“If you do not find a way to make money in sleep, you will work until you die” – Warren Buffet
DIFFERENCE WITH AN ACTIVE INCOME
The income which are earning from your hard work is an Active Income. Our job is a best example of an active income. Where we must present actively to earn money. It takes our lot of time to earn very small. An active income easy to earn whenever you want. This will not give you satisfaction but increases your frustration. Some examples of active income like your daily job.
Whereas in passive income, it does not necessary to be present and can earn limitless. While you can make passive income online by starting your social media channel as well. Passive income examples- Stocks, investments, interest, Youtube channel etc.
IDEAS FOR PASSIVE INCOME
Your passive income can only start with your assets. If you buy assets regularly and building your big asset block, it will give you an easy passive income. There are several ways to earn passive income.
But before going further with our conversation, here I want to explain how passive income works?
Passive Income is not earned by you, it is earned by your money i.e. by letting your money work for you. When you create a system i.e. a company, you hire people to work for by paying them. Here, you are using your money to buy time (OPT – other people’s time). Collective time of people hired by you earns more money for you that is not possible by working alone.
But when you lend or invest your money to someone, you let your money work and earn for you. Rich people do not work by themselves they let their money work for them. That is how they got so much free time. Their prime motive always is to be free so that they can think and create more assets. (Read How to generate best income-generating assets.)
Now I will tell you some common assets and ways to build for yourself –
Building A Business
You can learn new skills and practice that skill to become a master. You can start your own business (Entrepreneurship). The center theme for starting a business must be solving an existing problem with creativity and innovation while keeping in mind its affordability and accessibility. While building a business, it must take into consideration that a proper system is built. So, your participation is not needed.
Stock Market /Mutual Funds
That is the easiest way of building assets. But investment in the stock market needs knowledge and little active participation. Sometimes, the Stock Market is riskier for those who do not gain proper knowledge and dive directly into the market. To reduce risk, mutual funds are created that are managed by professionals & you do not need to worry.
When you invest in a company, there are two ways of earning – Dividend Income & Capital Appreciation. When you buy a company share – you hold a part of the ownership of that company that entitles you for the dividend income. Like the company grows with time and the share price, so you have the benefits of capital appreciation. People do not think that investing in stocks is a good option because of the loss in the stock market. But if you study carefully about a company’s behavior and environment then no other income can give you such a huge profit.
[Disclaimer – We do not suggest that mutual funds are safer than the Stock Market. Individual’s knowledge & decision make a choice riskier or safe. So, before investing in either a mutual fund or stock market proper knowledge must be needed.]
Real estate/rental income
That is the most prominent passive income earned by Indian families. In this, you can buy a property and get rent by letting people use it. That is one of the best and safe investments you can have.
You can invest in bank/RD/FD and take interest from the bank. That is a safe and secure method to earn a profit. But the interest in this is not more than 9% (excluding tax)
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“The moment you make passive income & portfolio income a part of your life, your life will change. Those words will become flesh.” – ROBERT KIYOSAKI
In India, we mostly do not focus on passive income and stick in the same place for years working under someone’s supervision. But if you know about it, you can retire in your early 40s or even in the 30s. You can go comfortably on vacation and travel the world without any tension. That gives you financial freedom. Passive income helps to make money by your money. Investing in some business/assets make your money multiply by itself. Active income may play an important part however retiring in the early 40s is not everybody cup of tea & not everyone can achieve it. Start focusing on passive income, the more early you start, the untimely you will become financially independent. (Click to read: Are you financially Educated?)
“You become financially free when your passive income exceeds your expenses.” – T. Harv Eker