Passive income is income received on a regular basis, with little to no effort required to maintain it. It is money that flows into your pocket while you go on about life doing whatever it is you do. You are probably wondering what passive income has to do with budgeting. All types of income have to do with budgeting, because you budget off of the income you receive. When you are collecting passive income, the money you are earning is grossly disproportionate to the hours you actually have to work to earn it. Your income loses correlation to your hours.
Passive income is not receiving something for nothing and it is not a get-rich-quick scheme. It does require some work on your part in the beginning. You will be planting seeds today, so you can harvest freedom for the rest of your life. Creating passive income involves changing your mindset from what you have been taught, which was grow up, go to school and get a good education, get a job and work the rest of your life for a pittance every week or every two weeks.
Passive income can help you get out of debt, without trading time for dollars. It can help with your overall financial situation and change the trajectory of your financial life. Still not on board with passive income? Here are a few ideas to help you with earning some extra cash with passive income.
1.Real Estate Investing
This probably falls more in the category of semi-passive income, since an investment in real estate is always at least a little bit of an active venture. Still, once you have a property that is established and fully rented, it’s mostly a matter of managing the property and keeping it performing well.
Additionally, there are professional property managers who can manage your property for you, usually for around 10% of the monthly rent. This professional management can make the investment much more passive, but will take a bite out of your cash flow.
2. Invest in real estate investment trusts (RIET’s)
In #1, we talked about investing in real estate. But let’s say that you want to invest in real estate, but do it in a truly passive way. You can do that through a real estate investment trust. This is something like a mutual fund holding various real estate projects. The fund is managed by professionals, so you never have to get involved.
One of the big benefits of investing in REITs is that they typically pay higher dividends than stocks, bonds, or bank investments. You can also sell your interest in a REIT anytime you like, which makes it more liquid than owning real estate outright.
3. Dividend yielding stocks
Shareholders of dividend-yielding stocks receive a payment at regular intervals from the company’s profits or reserves. Since the income received from the stocks isn’t related to any activity other than the initial financial investment, owning dividend-yielding stocks can be one of the most passive forms of making money.
4. Car Wash
There is a self service car wash on just about every corner near my house. They have both the “quarter machine” style car wash ports as well as a more sophisticated automatic washer that does all the work for you. I’ve never seen one worker at these car washes. But I’ve used at lease one of those car washes countless times. Whoever owns these places, is probably making off like a bandit collecting passive income everyday from people visiting their property and pumping money into their machines.
Go to any college town and you’ll find a self service laundromat on just about every street corner. Why? Because they know that college kids aren’t going to have laundry services available in their cheap apartments, and so this serves a need that they have. Just like the car wash, I rarely ever seeing anyone working at a laundromat. So that means that everything you make above your operational costs becomes passively earned income.
So now you see how passive income can be made and how it can help you have extra income in your budget.