What Is Passive Income and How Can It Improve Your Life

You’ve probably heard of the phrase “the rich continue getting richer while the poor continue getting poorer.” It’s often used to show the unfairness of money. However, this notion is not logical. The reasons why people say this is because rich people focus on different ways of earning money. There are a lot of stories about how poor people have accumulated great riches; people like Bill Gates, Warren Buffet, Oprah, and Richard Branson were not born in rich families. Yet in the course of their lifetime, they’ve amassed huge riches. This is because they maximize the power of passive income which we’ll talk about today.

What Is Passive Income?

Before we define passive income, let’s first check what active income is;

Active income is earned as a direct result of our efforts; in other words, you work to get paid a certain amount for the hours you’ve worked. This is expressed in terms of wages and salaries. This kind of income limits a person to a certain place as you have to show up to work to earn your money. With active income, it’s nearly impossible to enjoy the pleasures of life since your time is tied to a job.

With that in mind, let’s briefly discuss passive income;

Passive income, also known as residual income, is when you continue to receive pay after the work is accomplished. This includes royalties for your digital assets such as books, songs, movies and income from business investment and real estate investment where you don’t actually have to show up to earn it. For instance, Bill Gates still makes millions from Microsoft even though he is no longer working there.

Residual income comes from investing in an asset that will continue paying you after the work has been completed. To create passive income, you need to invest in an asset that people will continue buying on a regular basis for a long a time. For instance, rent is passive income for a landlord who invested in real estate; royalties are for people who invested in coming up with books, movies, or songs. Likewise, profits are a passive income for business owners who doesn’t need to be overly involved in the daily activities of the business. However, by passive income, it doesn’t mean that you won’t be involved in generating it; it just means that you won’t be overly involved.

Let’s now narrow down to how passive income can change your life;

#1: Income Security

The biggest concern with active income is the uncertainty of getting laid off. That’s why you need an investment that will be giving you extra income which can sustain you in case you lose your job. The residual income will pay off your bills and feed you as you look for other avenues of income. With it, you won’t get a shock of a lifetime in case you lose your job.

#2: Extra Income

This’s probably the most obvious benefit of residual income. I mean, who doesn’t like having an extra couple of dollars every month to build up your saving, pay off your responsibilities, and so on? Residual income is like free money, but you need to use it wisely; invest back to make it sustainable.

#3: Can Serve As Security of Bigger Loans

Most financial institutions view your passive income from property rentals as a regular source of income. When you have your tenancy agreement stamped and supported by bank statements, banks can advance higher loans to you. It will also enable you to bargain for better terms of loans and interest rates.

#4: There’re No Income Limits

With passive income, you are unlimited. The more you invest in investment that guarantees a good return, the more income you’ll earn. Unlike active income where you get paid based on the hours you work, in passive income, it’s all down to the effort and money that you invest. That’s why it’s always the better option. Besides, you’ll be your own boss, and you can do what you see right without consulting anyone.

#5: Lifestyle

Being financially free is the ultimate goal of everyone in life. Passive income gives you an opportunity to design your life the way you want it to be. This is because it doesn’t restrict you to fixed working hours. Let’s take for instance you are setting up a blog or a website; you’ll need to work at your own time to write up blog posts. This will help you shape your life in your own way.

Final Thoughts

Nowadays being employed is not secure at all. You can wake up the next day and get you’re fired. The best way to secure your income is by investing in decent areas where you are guaranteed of passive income. Invest wisely, and retire early; that’s the slogan.

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