Passive income is vital when it comes to building long-term wealth and establishing financial security. As the name suggests, passive income is any income that requires little or no work on the part of the investor. It’s regularly-earned income from work that is already completed or that takes little effort to complete.
That said, all passive income streams require an upfront monetary investment and/or an upfront time investment. Additionally, they require regular monitoring and maintenance. Nevertheless, establishing one or more passive income streams is one of the most important steps toward achieving financial and personal goals. Here are some reasons why it’s so important and some tips for getting started.
The Benefits of Passive Income
Passive income essentially means that you’re making money while you sleep. On its face, this is appealing, yet this type of income offers investments a number of important benefits that all investors can benefit from.
- More time. Time is a finite resource, so any opportunity to save time or create more free time is a big win. Earning passive income means more time to do what you want, opportunities to pursue things you’re passionate about, an improved work-life balance, and generally an opportunity to improve your quality of life.
- Increased Financial Security. Passive income streams mean that you’re not solely dependent on your paycheck. This means fewer risks, higher returns, and a backup plan.
- A faster route to financial goals. Earning passive income means that you reach your financial goals faster. If you’re able to earn a little more every month, you’ll be on a faster track to your short and long-term financial goals.
- Locational independence. Once you develop steady streams of passive income, you’ll find that you can work anywhere. This means more independence and control over your life, plus it can lead to improved quality of life and, for many people, a lower cost of living. The bottom line is that passive income gives you more choices, which leads to more control over your finances and life.
- Reduced anxiety and stress about the future. A final but important benefit of passive income streams is reduced stress and anxiety. Passive income improves your financial situation and can give you peace of mind about your financial goals. This means less worrying about the future and more confidence that you’ll handle any challenges you experience.
Types of Passive Income
There are lots of different types of passive income, each with its own pros and cons. While the list of potential opportunities is long, we thought it’d be helpful to focus on some of the most common and accessible forms of passive income. Plus, we couldn’t help but focus on some of our personal favorites.
- Real estate. For many people, this is the first thing that comes to mind when thinking about passive income. Investment properties can be a great way to earn passive income every month in addition to ongoing appreciation. The downside to investing in real estate is that it’s initially less passive than other options. In addition, it takes more ongoing maintenance and oversight than some other types of investments.
- Dividend stocks. Divide stocks are another good option for investors. While they require some extensive research from the outset, once you’ve selected a stock, it’s simply a matter of monitoring its progress, making this a great option if you want to be less involved in your investment. That said, it can be riskier than investing in real estate. Plus, it takes a large initial investment to earn a reasonable income every month or quarter.
- Invest in a Business. Becoming a silent partner in a business is another great way to earn passive income. The risks are higher with this type of investment, but the right business can lead to really attractive returns. The key here is doing plenty of research and ensuring that you understand both what you’re investing in and the associated risks.
- High-yield savings accounts. High-yield savings accounts or money market funds are a passive and low-risk way to earn a little extra income. The only time investment here is researching the right fund, which can be attractive to investors. It’s very passive and low risk, but the downside is that the returns are generally lower than other types of investments.
- Digital products. Creating a digital product – for example, an e-book, online course, or app – is an increasingly popular way to earn passive income. This requires a big-time investment on the front end, but after that, it’s simply a matter of monitoring the sales of your product. If you have unique knowledge or skills and can make the initial time investment, this can be a great option.
The above examples are just a few of our favorite types of passive income. The options are basically endless – ranging from vending machines and car rentals to peer-to-peer lending and affiliate sales. Whatever your interest or expertise, there is likely an option for earning passive income.
When getting started, keep a few things in mind:
- Focus on things that you know or are interested in. The more you understand your investment, the better. Because of this, it’s a good idea to focus on things that you know or that you’re interested in learning about.
- Do plenty of research. Passive investments are generally not passive from the start. They take lots of planning and research. Before investing your money or time, make sure that you have done plenty of research and are able to make informed decisions.
- Don’t be afraid to get started. While research and planning are important, you’ll always have things to learn and conditions will never be perfect. Once you’ve done your due diligence, don’t be afraid to get started. You might make some mistakes, but you’ll learn from them and get better as you go along.
Don’t Be Afraid to Ask for Help
Finally, don’t be afraid to ask for help. One key to successfully starting something new is finding others that are experts in the area and learning as much as you can from them. Seek out mentors, look for helpful tools, and ask as many questions as you can. This will be a great way to learn, avoid common mistakes, and gain confidence.
If you decide to get started in real estate, ezLandlordforms.com is there for you every step of the way. We can help you screen potential Tenants, create your first Lease Agreement, and manage your new property. Plus, our team of Landlords is available to answer any questions you have. We love having new Landlords in our community and we love real estate. We hope you’ll get involved in both!
Emily Koelsch, ezLandlordForms Contributing Writer
Emily Koelsch is a freelance writer and blogger, who primarily writes about business, real estate, and technology.