Why You Need Passive Income and How to Get It

Passive income can generate profit by itself after you set the system up. It's a great income that can benefit your life. (eamesBot/ShutterStock)

Are you familiar with the cartoonist Carl Barks? He may not be a household name. But, I’m sure you’re familiar with his work since he was the first artist and writer of Donald Duck—he also created Scrooge McDuck.

Known as the “Good Duck Artist,” Barks was one of the few early Disney artists who didn’t remain anonymous. As such, he achieved a high level of fandom. And, he was also decent at creating multiple sources of income—mainly based on his talent.

Why You Need Passive Income and How to Get It

Barks retired in 1996. But, he supplemented his pension and occasional script earnings with commissioned artwork and collections like The Carl Barks Library. Perhaps, this is why he’s credited with saying, “Work smarter, not harder.”

Do I have anything against hard work? Of course not. But, I’m going to be brutally honest.

Let’s say that out of college, you land a job that pays a solid salary. During the week, you work your tail off. And, even when you’re off-the-clock, you’re responding to emails or planning how you’re going to spend your workweek.

Next thing you know? You’ve been given the proverbial gold watch and you’re put out to pasture. It’s time to retire.

A passive income can support your life after you retired. (Jingming Pan/Unsplash)

Even if you contributed to an employer-sponsored plan, like a 401(k), that might not be enough to enjoy your Golden Years. In fact, the Federal Reserve’s “Report on the Economic Well-Being of U.S.” found that 63 percent of Americans either don’t think their savings are on track or aren’t sure.

What about Social Security? Some fear that this will become depleted. The more likely scenario, however, is that your benefits won’t be as much.

When you consider the above, your retirement dream has the potential to become a nightmare. But, a passive income could prevent that from manifesting into reality.

What Is a Passive Income?

First things first. Let me quickly define a passive income.

A passive income is nothing more then earning money with little to no effort. Some might say this is when you make money while you sleep. That might not always literally happen, but I think that you get the jest.

Examples could be renting out a property that you own, selling an information product like a book, or through affiliate marketing on your blog.

There is a huge misconception though about creating a passive income. Mainly, that it’s as easy as a Sunday morning. That couldn’t be further from the truth.

For starters, there will always be work involved. Let’s go back to the example of selling a book. You still need to actually write the book and market it. I mean you can’t wave a magic wand and have a spell do this for you, right?

Additionally, you also have to do some maintenance. You may have to make revisions or updates to your book over time. And, you definitely need to market it if you want to sell it.

However, with a little bit of time, money, and maybe even elbow grease, you have the opportunity to generate additional income. While a passive income may not make you Jeff Bezos-rich, it can be a profitable and reliable income stream you’ll have for the long haul.

A passive income is nothing more then earning money with little to no effort. (Braňo/Unsplash)

Why Is a Passive Income So Important

Sure. Padding your checking or savings account is nice and all. But, why should you bother with a passive income in the first place?

Helps Achieve Financial Freedom

Being liberated from your finances has varying meanings to different people. For some, this could be nothing more than being able to pay your bills on time or going on an annual vacation to Disney with your family.

Others define financial freedom as;

• Being debt-free—or at least working towards eliminating your debt.
• Having at least three months of expenses saved, aka an emergency fund.
• Saving for long-term goals, mainly retirement.
• Being able to treat yourself responsibly.
• Not losing sleep over financial concerns.

There are several ways for you to achieve financial freedom. Budgeting, working with a financial advisor or counselor and automating your savings immediately come to mind. But, when you’re struggling to make ends meet in this economy, this may seem impossible.

However, picking up some extra cash through an additional income stream can solve this quagmire.

For example, you could monetize your hobbies by selling handmade items on sites like Etsy. You’ll have to put in the time making these products. But after you do, it can become a passive income that could lead to a thriving business.

Improves Financial Stability

If the pandemic-that-shall-not-be-named taught us anything, it was that most of us were incredibly unprepared. One survey reported that 49 percent felt financially prepared for the economic impact of the coronavirus pandemic. In contrast, 33 percent felt unprepared.

While many of us didn’t anticipate a global pandemic from occurring, having a passive income could have provided financial stability.

Aside from the pandemic, financial stability allows you to weather any storm. So, if you do lose an income stream or need to handle an emergency, you’re covered. You know that you still have cash flowing in.

Reduces Stress and Anxiety

Stressing over money isn’t exactly a new phenomenon. In fact, it’s often been cited as the main source of stress. In fact, a Capital One Credit Wise survey “found that finances are the number-one cause of stress (73 percent)—more than politics (59 percent), work (49 percent), and family (46 percent).”

The thing is, the stress of any kind shouldn’t be brushed off. After all, stress can lead to dire mental and physical problems like depression, insomnia, and heart disease. Financial stress can also impact your relationships. A study from Kansas State University shows that this can actually decrease relationship satisfaction and increase the chance of divorce.

A passive income will definitely reduce the financial stress in your life. Again, when you’re earning a passive income, you’re able to achieve financial freedom and stability. And, this will also help you manage your fear of the future.

Secures Your Financial Future

Speaking of your financial future, there are several action steps involved. These include:

• Understanding your relationship with money helps clarify your goals.
• Assessing your financial health.
• Setting SMART financial goals.
• Creating and sticking to a budget.
• Keeping your spending in check.
• Protecting and growing your financial well-being.
• Becoming more financially literate.
• Scheduling frequent check-ups.

Where does a passive income fit in with the above? Well, any additional revenue can help improve your financial health. It also makes it easier to reach your goals and prevent living above your means.

Best of all? A passive income gives you peace of mind about tomorrow. While some forms of passive income, like selling products on Etsy, may ebb and flow, other types provide more certainty. For example, an annuity offers you a guaranteed monthly income in retirement for the rest of your life.

A Passive Income Is a Gift that Keeps Giving

Finally, a passive income can give you the greatest gift of all: time.

Unlike money that can be replenished, once time is spent it’s gone. Forever. But, thanks to a passive income, you can break free from the rat race and live your life.

For example, as opposed to being shackled to a desk from 9-to-5 for thirty years, you can travel whenever you want. You can set your own schedule so that you can enjoy time with friends, family, and hobbies. And, you might be able to cash in on your passions as well.

Overall, a passive income is one of the best things that you can do for your mind, body, and soul. But, how can you get it? Well, here are 15 passive income ideas to explore.

Dividend passive income can bring you a thousand dollar per month if you invest $400,000 into the right products. (Leckamon/Shutterstock)

Passive Income Ideas

Generally speaking, there are four ways you can build a passive income.

• Buying cash-flowing assets. Probably the most common passive income where an asset that you own produces an income. Examples include real estate or investing in stocks.
• Building assets. Products or services that you have either created or built are also types of passive income. A popular example of this would be creating an online course.
• Sharing or selling assets. You can also turn whatever you own into income-producing capital. Think renting out a room on Airbnb or selling investments.
• “Reverse” passive income. Here is where you would reduce spending. Remember, a penny saved is a penny earned.

In short, a passive income is when you have an income that maintains itself. Just remember that you need to put some effort up front. But, after you do, you can make money without being actively involved.

If you need some suggestions, start with the following passive income ideas.

Affiliate Marketing

Here you would promote a third party’s product or service on your website through Awin or ShareASale. Social media “influencers” on Instagram have also become popular platforms for promoting products.

While you can earn money from commissions, usually three to seven percent, this won’t happen overnight. It’s going to take time to attract followers who will purchase the products you’re recommending.

Annuities

An annuity is nothing more than an insurance product that converts regular payments into a fixed income after the age of 65. For example, with a Due Annuity, you make monthly contributions and will receive a three percent guaranteed interest rate on your money.

Once the annuitization period begins, you’ll automatically have money deposited into your bank account each month for the rest of your life. Besides knowing how much you’ll receive each month, annuities include tax deferral, premium protection, and customization benefits.

Automatically Invest in the Stock Market

If you’re intimidated by the stock market, or just getting your feet wet, robo-advisors are the way to go. Thanks to solutions like Betterment, all you have to do is answer a couple of questions when getting started. Once set up, it will automatically invest on your behalf.

Business Investments

If you’re willing to take the risk, you could invest in a business and be a silent partner. You can even do this through companies like MainVest.

A little riskier option would be to work an existing business. A couple ideas would be:

• Purchasing a local business from an owner who is looking to retire.
• Buy a franchise.
• Lend money or equipment to businesses.
• Invest in a low-maintenance business idea like a carwash, laundromat, or vending machine.

CD Ladders

With this method you would purchase certificates of deposits from banks in increments. That means that you’ll be dividing your investments evenly into CD’s that have different term lengths and maturity dates. It’s a low risk investment that will help you earn a higher return on your money.

Create an App

As long you have the idea for an app that people will download, you’re golden. After all, you can always hire someone to do all of the technical work, like coding. Once it goes live, you can make money from in-app ads or download sales.

Design T-shirts

With sites like CafePress, you can put your designs on a shit and make money off of the royalties.

Dividend Stocks

A tried and true way to earn a passive income has been purchasing stocks. In particular, Dividend stocks are a tried and true way of earning a passive income. All that’s involved is investing money into a company’s stock.

Over time, you’ll receive a regular payout. For newbies, M1 Finance is a great place to get started.

High Yield Savings Accounts and Money Market Funds

One of the simplest and safest passive income strategies is through a high yield savings account and/or money market funds. Both are probably offered at your bank and are FDIC-insured.

Invest in a REIT

“Real estate investment trusts, or REITs, work by pooling investors to generate funds that can be used to purchase or fund income-generating properties,” explains Rumzz Bajwa in a previous Due article. “REITs are companies that own several real estate properties like commercial buildings, apartment complexes, or hotel buildings.”

“Buying stock from those companies allows you to enter the real estate investment market without actually owning the property,” adds Rumzz. That means you don’t need to maintain them while receiving a higher payout.

Real estate investment trusts, or REITs, work by pooling investors to generate funds that can be used to purchase or fund income-generating properties. (Antonio Guillem/Shutterstock)

Launch an eCommerce Site

Whether if you’re drop-shipping, using platforms like Shopify, or selling your own handmade goods on your website, an eCommerce site is a fantastic way to earn a passive income. Just note that you need to put in a lot of time between research and building your store.

Play the Rental Game

There are several ways that you can make money through renting. One of the easiest ways would be to list a spare bedroom on Airbnb. I also know plenty of people who when purchasing a home went with a multi-family home. In addition to having their own place, they can rent out the other unit(s).

You could also think bigger and rent out property like vacation homes, apartment buildings, or offices. Some people could rent out farmland as well. Or, you could rent out everything from your car, household items, or even bandwidth if you want.

Peer-to-Peer Lending

A P2P loan is just a personal loan between a lender and a borrower. In most cases, you would do this through a third-party intermediary. The most well-known players are Prosper, LendingClub, and Funding Circle. You’ll eventually earn interest on the loan payments.

Sell Information Products

Did you know that the knowledge you possess can be used to make money? Typically, this is through the sale of information products like eBooks, online courses, webinars, and instructional videos.

Other information products include membership sites, cheat sheets, templates, and reports and analysis.

By John Rampton

The Epoch Times Copyright © 2022 The views and opinions expressed are only those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.