Passive income is a topic that’s frequently mentioned, yet not necessarily well understood. People love the idea of generating passive income, but most of us assume it’s simply another method of building wealth.
In fact, setting up a reliable system to earn passive income may also boost your emotional well-being.
What is Passive Income?
Want to know a little secret? Your income is your greatest wealth-building tool. And if you want to generate massive funds, you probably need multiple streams of income.
But since there’s only one of you, this means you have to get creative. And for many individuals, passive income is the answer.
Passive income is defined as money you earn in a way that requires little to no daily effort to maintain. In other words, it entails the generating of income without your having to attend to the venture or investment on a constant basis.
“Passive income generally won’t make you wealthy overnight, so forget about any get-rich-quick schemes you’ve heard of. But steady, profitable passive income options can build some serious money over the long haul,” wealth advisor Chris Hogan writes.
“We’re talking anywhere from a few thousand dollars to hundreds of thousands of dollars — depending on the income stream.”
Many wealthy individuals have a main job and then three, four, or even five separate passive streams of revenue that supplement their primary source of income. It takes a while to build to this point, but it’s theoretically possible for anyone to reach it and enjoy steady, auxiliary income.
Here are some of the most common ways.
- Real estate. Single-family rental properties are commonly used to generate monthly income. You can also try other types of income producing real estate. For example, here’s a good guide on why mixed-use property is a smart investment.
- Online business. The beauty of online businesses is that they can often be streamlined with automated tools and systems. Strategies like affiliate marketing, dropshipping, and selling online courses all take work on the front end, but can become fairly hands-off once the business is up and running.
- Dividends. Investing in dividend stocks can produce small yet regular compensation (in addition to the appreciation of the stock over time).
Americans use hundreds of types of passive streams of income on a daily basis to generate extra money. The above are just a few of the basic categories. You’ll want to do some research with your own strengths and interests in mind.
The Psychological Benefits of Passive Income
It’s easy to calculate the financial perks that passive income can provide to people, but the benefits usually go much deeper. Believe it or not, passive income actually yields an array of psychological benefits, too. Consider the following; it can:
1. Reduce Financial Stress
When you have a variety of different streams of income flowing into your coffers, you’re less likely to get stressed when any one of them dries up or becomes compromised. Overall, this means lower anxiety over money. Isn’t that something we could all benefit from?
2. Promotes Personal Freedom
When you have passive income, you may be able to dump a job you hate doing. If your 9-to-5 is killing you, turn in your resignation and find something you actually enjoy doing. With the extra income, you might even be in a position to take a pay cut in order to land work you truly love.
3. Provides a Creative Outlet
It’s nice to explore your various talents and interests. Passive income earning opportunities empower you to flex your creative muscles and find out what gets you excited. Having a variety of types of work lined up prevents you from getting burned out over any single outlet.
4. Shifts Focus
When your income goes up, your entire mindset shifts from scarcity to abundance. Instead of regarding your life through the lens of survival, you’ll begin to see exciting new opportunities. A simple shift can create profound results.
Another byproduct is that you may become less fearful of messing up. You gain a healthy appreciation for risk taking, which almost always leads to better long-term value creation.
For better or worse, we live in a world where money is a significant factor in everything we do. And though it’s unwise to attach all your happiness and identity to money, it’s hard to deny the fact that financial stability tends to go hand in hand with emotional stability.
By developing several passive streams of income, you can increase your chances of enjoying a healthy, balanced lifestyle. Good luck!