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Understand the Concept of Passive Income

Money & Finance

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Essentially, passive income is money acquired without using your personal exertion . It’s income that is not linked to hours worked. If work is required, it is usually done one time with the money paid multiple times.

There are two forms of passive income:

  • Income derived from business and income derived from investments. Business income is the money that one receives without actually needing to work in the business.
  • One acquires a business that is either run by someone else or is self sufficient. The profits generated are taken out by the owner thus yielding passive income.

Robert Kiyosaki is the most famous advocate of this principle and has been teaching it for decades, read Rich Dad Poor Dad .

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Income derived from investments is making money from money. Instead of you working for money, it is putting your money to work for you. depending upon the investment, a rate of return is realized which generates passive income.

Examples of this are dividends from stocks, appreciation in real estate, interest on savings, etc…

The wonderful aspect of this type of income is that the money is created regardless of one’s efforts. If you don’t show up for work, the income still exists. You will earn the same while at work as you would sitting on the beach. In addition, this allows one to increase their overall efforts.

If your money is working while you are focusing on something else, you are, in effect, paid twice for your time. This is called leverage and it’s easy to see how it is possible to create massive wealth under this scenario.

Focus your attention on creating passive streams of income. It holds the key to all financial freedom.



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Guest Nicole

Posted

Thanks for this, I like how the terms are explained and the mention about  financial freedom, one thing that has to do with  happiness :) 

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