Dear Health & Wealth Seeker,
You need to start creating some passive income today. There, I said it.
But first, hopefully you are having an awesome day.
This morning, while sipping my cup of bergamot tea, I was looking over my online investment accounts. I am so grateful for having some passive income.
You know that I started sharing these messages with you because I want you to have a better, healthier, and wealthier life. So…I encourage you to start creating your passive income immediately.
What is passive income?
Money made without very much ongoing involvement is passive income. You do not have to do something regularly to keep the passive income flowing.
Some forms of passive income require very little work to set up. You just need money to set it up.
Other forms of passive income require you to do some initial work to set up. But once you do it, you continually get paid.
What is not passive income?
Any income earned from you working on an on-going basis is not passive income. If you are trading your time for money, that is not earning passive income. It’s considered earned income when you have a job for which you are paid. In other words, when you earn active income by working for someone else, that is earned income, not passive income. However, even if you work for yourself, you are working for earned income if you have to keep doing the work to keep the income coming in. You can exchange labor, goods, or services for earned income. Even tips are considered earned income. The thing about earned income is that when you are no longer working, either by choice or not by choice (such as becoming injured), the flow of income ceases.
Is passive income taxable?
Yes. All income is taxable, unless it is income that the I.R.S. has specifically declared it as not taxable. Therefore, when you make passive income, you will need to set aside some of the income to pay the taxes on that income.
Why is passive income important?
Passive income is important for the following reasons:
- It reduces the stress of needing to make more and more active income.
- Passive income raises your income floor. Your income floor is the least amount of money that you can make. Having passive income means that even if you lost your job, the amount of money that you are earning will be greater than zero.
- You can diversify the sources of your income. At different times, various parts of the economy are stronger or weaker. By having passive sources of income, you can have sources of income that are in different sectors of the economy.
- It creates a stream of income that can continue into your retirement. That means that, in addition to your retirement accounts, and social security benefits, you would have an additional source of income. This can improve the quality of your retirement.
Wealth-Related Reasons That Non-Active Income is Important
- You can start building wealth when you have passive income. In order to become wealthy, you need multiple streams of income.
- There is a limit to the amount of time you can put into active income. However, if you build streams of passive income, you can more easily increase your wealth since the passive streams, beyond the time to set them up, don’t rely on you having more hours to work.
- You can build wealth that can be passed to future generations. Even if you have a high paying job, you cant pass a job down to your descendents. But…you can pass a stock portfolio and rental properties down.
- Furthermore, one source of passive income, dividends, is taxed at a lower rate than the money you make from earned income. Less money paid for taxes means more money for you to keep, and more money to build your wealth.
- If you get enough passive income, you have freedom with your time.
Knowing all that I have said, why the heck would you not want some passive income!
If all of what I have said does not convince you of the importance of passive income, here is a quote from Warren Buffet, often labeled the most successful investor of the 20th century:
“If you don’t find a way to make money while you sleep, you will work for money until you die.”
Convinced? Then what are some ways that you can create money with little to no physical effort?
Two sources of passive income that require little to no work include:
- Interest
- Dividends
- REITS
Other sources of passive income involve some initial set up work. Some of those include:
- Ebooks
- Creating downloadable educational materials
- YouTube Channel
- Rent out things that you already own (like tools, bikes, or a car)
- Real Estate crowdfunding (Fundrise and Diversyfund)
- Podcasts
- Merchandise that you design (like T-shirts and mugs) (Check out Merch by Amazon and Spring)
A source of income that can be either passive or semi-passive:
- Rental income
But remember this:
Passive income takes time to build. But don’t get discouraged. Just start, with whatever you can. Whatever you can put into creating passive income today, will give you more passive income than yesterday. However, if you never start to build passive income, you will definitely have zero.
Passive income is a very beneficial asset. It is something that can make a big difference in your life.
Start creating your passive income today.
.
As Always,
Rich Mom
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Do you want to read more of a mom’s letters written to inspire financial independence by age 30? Check out:
Stock in Focus: Pioneer Natural Resources
My 3 Streams of Passive Income
Nine of My Favorite Dividend Stocks
There’s also:
Wondering About Rich Mom?
If you stumbled upon this post and you are wondering who I am:
I am a tea lover and a mother to a young adult. I have majors and degrees in business, economics, and education, and I am passionate about financial literacy and personal finance. I am worried about the future of young adults who are often being burdened by massive student loan debt, but at the same time have never been taught about financial literacy.
Forever Living Just Paycheck to Paycheck?
So many people work, forever living just paycheck to paycheck, never understanding the pattern that would make their lives easier. My goal with my blog is to inspire those ages 30 and under to become more financially literate, become financially independent, and be able to live a healthy (mentally and physically), happy, generous life, in which you can help others do the same. But remember, my blog is intended to inspire, but not as investment advice.
I am not an investment advisor. Always do your own due diligence and research before investing. Check with your own investment advisor.
Also remember that past performance is not a guarantee of future performance.