December 13, 2010, 5:00 am

Why Passive Income Is So Important

by: The Financial Blogger    Category: Alternative Income
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I am currently welcoming a few Yakezie guest post in order to share the wealth; there are some gem to discover and today we have an interesting post about passive income:

The following is a guest post from Kevin at FinanciallyPoor.com, where he writes about many personal finance topics but focuses on changing your attitude about money to get you Financial Freedom.

The term ‘passive income’ doesn’t sound very exotic and interesting, but it is one of the most important things that you need to know about to understand financial freedom in its true sense.

Passive income is central to leading a better quality life, both financially and otherwise, because it gives you more freedom and better control of your life.

We all know that we work to earn money and vice versa. This is how the economic system functions. However, there are ways in which you can make money without really ‘working’, which falls under passive income. To the beginner, this sounds shady, but it surely isn’t. We are all aware of such forms of income.

Renting?

There are several ways in which you can build your passive income. Real estate is a favorite among many rich and high net worth individuals in spite of the housing crisis. This is because house rent offers a steady flow of income without you having to work for it, ever. Once a house or commercial space is purchased and leased out, it brings in a steady flow of cash for the investor.

Investing?

Dividends can be another rich source of passive income. These are profits shared by the companies whose stocks you own. Anyone who holds stocks for long terms is aware of dividends. Stocks can thus help you make passive income while also appreciating in value, so that you can sell them off whenever the need arises.

Online?

In today’s online world, there are several ways to build passive incomes online. In most cases, the advantage of online passive income building techniques is that it is very cheap. Consider this – you will have to spend hundreds of thousands of dollars to own a house and lease it out, but you can start a blog for free, without any initial investment. The downside of course is that the income made from a blog or website is usually very small, but even a few hundred dollars made each month without investment can be a good deal, right? If you have a website or blog that can drive constant traffic, you can get passive income with ease. Also, affiliate marketing can help build some passive income, though not everyone can be successful at it.

Why?

Passive income becomes relevant and important for a number of reasons. Since you do not have to work to get passive income, it is essentially without work but most importantly, you make the money without physically spending time. This means you are able to leverage your money instead of your time.

If a professional wants to double his income, he will have to work twice as hard, but through passive income, you can get an alternate cash flow that is independent of your work.

This also naturally gives you more freedom with what you do. If you have very good passive income sources, you can also quit your job and do what you like, because you are not compelled to work for money.

Also, in these uncertain times, passive income can help you tide over difficult times, like when a partner loses a job or takes a cut. As a result everyone should take concrete steps towards building a good source of passive income.

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Comments

I think this is definitely true. Passive income is great, and the original version was bonds or loans. You make an upfront investment, and then it throws off cash flows for the life of it. Obviously, you need a bigger investment to start with if you are going to live off it, but the idea remains the same. I would argue that this is the only true passive income, because all other forms (including real estate) require periodic maintenance. A blog, for instance, requires you to continually produce worthy content, otherwise no one will want to come back.

Great post.

Cheers,
My Own Advisor

Passive income is definitely important and has been one of the top priorities on my list for 2011. I’m looking forward to using online strategies. Like you said, any additional income could help.

Good reminder to everyone to look for passive income streams. You never know what can happen be it loss of job or health issues. The only way to combat the possible negative outcomes is to prepare, plan, and expand. 🙂

Nothing is passive, I mean nothing except for the interest earned in the bank!

by: The Financial Blogger | December 14th, 2010 (4:44 am)

@FS,
I agree with you but on the other side, there are several ways to earn money without “working a specific amount of hour on a steady basis”.

Passive income is certainly great if one has access to those opportunities. However, I’m also a big believer in making sure you invest in yourself to make sure your skills are always valued by the market.

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