Passive income is indeed real and in this article I want to discuss the differences between active and passive income and how to obtain passive income. Active income is obtained by trading time for money and passive income is achieved by trading minimal to no time for money. I call trading minimal time for money semi passive income and no time for money true passive income.
Semi passive income can be obtained by putting a product or service to work. Semi passive income can be obtained by having something that you create make you money with minimal time and effort needed for content or product creation with a high monetary return per hour of time invested. The most popular semi passive income streams are obtained by blogging, social media and selling products and services online. It can also be obtained by having a buy and hold Realestate portfolio either self managed with systems in place or managed by a property management company. Semi passive income can also be generated through appreciation by selling covered call or by buying long call options, swing trading and LEAPs.
Semi passive income can also be obtained through trading by the appreciation of stocks, bonds, Realestate, cryptocurrency, art, NFT’s or cabbage patch dolls where you typically exit the investment in 5 years or 5x the original investment. Whereby active income can be achieved by self managing Realestate investing through buy and hold investing or flipping houses. Active income can also be obtained through appreciation by day trading or buying short call or put options.
True passive income is obtained by putting money to work and it is obtained through appreciation, dividends and rent and these investments are typically held over 5 years and usually 10 to 30 years. You have to take earned, active and semi passive income and turn it into true passive income; or to put it another way you have to take the money generated by earned, active and semi passive income and put it into passive income producing products. This is the only way to make money while you sleep. Passive income generation through rents/Realestate can be obtained by investing in Realestate syndications, turnkey short or long term rentals or REITs. Passive income generation through dividends can be obtained by investing in stable and reliable dividend producing stocks. These dividends are also taxed at the long term capital gains level and helps greatly with tax optimization. Passive income generation through appreciation typically takes time without the added bonus of cash flow along the way. It’s generated by holding assets like stocks, bonds and Realestate for decades or more with reinvested dividends. Income is generated by selling the appreciated assets for cash; for example selling stocks and bonds using the 4% rule.
Having multiple streams of income is synonymous with having multiple streams of cash flow. It doesn’t matter if the cash flow or income is active, semi passive or true passive income. The average millionaire has 7 streams of income and you can be certain that 3 of those streams are rents, dividends and appreciation. The other four are likely obtained through business ownership. What I can promise you is that these millionaires are taking a portion of their earned income generated through their businesses by trading time for money and turning it into passive income, especially if they can’t remove themselves completley from the business. The passive income then supports their lifestyles and buys liabilities. Assets are used to buy liabilities. That is the formula to achieve and maintain millionaire status.
Dividends and rent will not make you rich overnight, but we have all heard of enough cryptocurrency millionaires to know that cash flow through appreciation can make you a millionaire overnight if your timing is right.
The question that I hear all the time is, How can I make more money? but the real question that is being asked is how can I generate more cash flow, and It’s by providing more value. There are many ways to provide value and it can be as simple as more interest in your work or going above and beyond or by making work your friend, but sometimes it simply comes down to supply and demand. There are opportunities to provide value all around us, but we have to have an open mind and we have to be searching for it. At the end of the day poor stands for passing over opportunities repeatedly. It’s a state of mind and not a state of being.
One thought on “How to Generate Passive Income”
Thank you for this! 👏👏