Passive income – or money that you earn without working – is one of the pillars of wealth creation. Before you shake your head in disbelief, it’s worth remembering that money can be made without working if you’ve invested your monthly surplus wisely over a number of years. Although you’ve worked to create the capital, the returns on your investment create your passive income. Here are some of the benefits of having a passive income.
Not having to work forever
Passive income, be it rental properties that bring in a monthly income or dividends on shares you’ve accumulated over time, means that you have a source of income that is separate from your job or business.
Even if your pension fund under-performs and you end up with a smaller pension pay-out than you expected, your passive income will easily fill the gap and allow you to retire comfortably – perhaps even a few years earlier than you’d planned to.
More freedom in your career choices
In today’s volatile economy and labour market a lot of people cling to their jobs for dear life, not knowing whether they’ll find something better if they lose or quit their current job. While this approach is understandable, it can also result in people stalling their career progress because they are afraid to take a risk and find something better – or start their own business.
Passive income means that you have a monthly income that is separate from your salary. This will allow you to change jobs or start your own business in the knowledge that you have a financial backup plan – a regular source of income that can pay your monthly expenses, or at least cover part of them, while you realise your dreams.
A better quality of life for you and your family
With extra income flowing into your household each month you’ll be able to afford a quality of life that may not be possible at your current income level. Although you’ll have to budget carefully and make a few sacrifices early on as you accumulate your capital, once your passive income becomes regular you’ll be able to afford that holiday you always wanted to take, or put money away for your children’s education.
If you allow your passive income to be reinvested, you’ll be gaining twice – earning compound interest on money you didn’t have to work for. Passive income can be invested and seriously boost your net worth over just a few years or a decade, making this the ideal investment tool.
With all the benefits of passive income, how do we go about creating it? Our next blog will give you a full strategy to generate passive income for yourself and your family.