Have you ever heard of passive income? How about regenerative income? These terms don’t often come up in general conversation, but if you learn what they mean and earn money passively, you could become very wealthy in the not-so-distant future.
What is Passive Income?
Most of us have only ever been taught about earned income. This is where you go out into the world, find a job that pays a certain amount of money per hour or yearly (with a salary) and work just hard enough not to get fired. This way the company gets a certain amount of work done for them and you receive a steady paycheck each week. If you want to earn more money, you either have to prove that you’re worth more than your paycheck, or you have to find a side-job that will pay you money for those hours.
With this earning method, money is finite. There are only so many hours in the day, which means you can only earn so much money. Even lawyers have a finite amount of money that they can earn. Sure, it might be more than you, but a lawyer that earns $100,000 a year cannot suddenly work ten times the hours to earn a million. There just aren’t enough hours in a day.
“If you can make a thousand dollars, then you can make a million.”
The quote above makes absolutely no sense when we consider earned income, but it describes passive income perfectly. Passive income is money that you work for one time, but are paid many times over. One of the best examples recently is the apps that you find on your phone. Angry Birds was created by a few individuals (I assume – I have not actually looked into this story) and was published in the App Store. They did the work up front for no payment, but thought it might pay off if some people downloaded the game onto their phone. Boy, did it ever! This one game has produced thousands (probably millions) of dollars every month, and no work is really being done anymore. At this point, Angry Birds is developing passive income.
Other forms of passive income are song writing, book writing, real estate, and systematic business ventures.
Since the popular success of Angry Birds, every Joe Schmo thinks they have the next big idea in the App world. While some Apps do earn quite a lot of money, most of them fail miserably and earn absolutely nothing. So what is the best way to earn passive income these days?
The best form of passive income has historical been in real estate. In order to do this the safe way though, you need to have large sums of money, which many of us do not have. But, this is why I continually advise people to get rid of their debts. By riding themselves of debt, they dramatically increase their cash flow, which can then be saved and invested.
The best real estate investments are often in multiplexes, where you can purchase more rental space for a lesser amount of money (in comparison to individual home purchases). Rent is still fairly high for these units, which allows you to earn more money for less square footage, which will then allow you to repeat your real estate investment into another complex. Once you own a couple of multiplexes and owe no debts to the bank, retirement may just be around the corner. Because remember, the money (with passive income investments) will keep coming in and will keep growing with each reinvestment.
Book writing still produces passive income today as well. The only problem is, fewer people are reading books and it is increasingly simple to write and self-publish your own. At this point, there are far more books out there than there is demand.
Passive income is not limited to certain segments of business however. You could produce passive income in any business. You just have to own it and develop a system so it can run smoothly without you. For example, you could own a restaurant that, when a proper system is applied, would run almost entirely without you! If it is profitable this way, then you could open another restaurant, and then another. Soon, your restaurants aren’t just producing food, but are also producing lots and lots of money – all without your magic touch. Direct your focus toward passive income and you won’t regret it.
Do you plan to produce passive income in the future?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.