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In a world where financial security seems like a distant dream, it’s more important than ever to take control of your financial future. Passive income is more than just a buzzword. It is a strategic approach to diversifying income sources and ensuring financial independence.
The whole point of passive income is having your money work for you. This is income earned with minimal sustained effort, and is in stark contrast to a 9-to-5 job. The advantage of passive income is its ability to generate income over time, often with an initial investment of time and resources.
Related: 5 ways passive income can help transform your financial future
Understanding passive income
Passive income is not synonymous with “no effort.” Typically requires an initial investment of time, effort, or capital. But once these income streams are established, they don’t require as much active involvement as traditional jobs.
Even if you work, you will never be truly financially free. Financial freedom means being free to pursue everything in life without financial constraints. This is why passive income is so important to your financial growth. To become financially free, you must have a passive income portfolio. Over time, these streams can grow and compound. This provides not only stability, but also the opportunity for rapid growth in wealth.
Find your Financial Independence Number (FIN)
Your Financial Independence Number (FIN) is the amount of money you need from passive income sources to not rely on traditional active income. In other words, it’s the amount of money you need to cover your expenses and provide a source of passive income so you don’t have to work. To find FIN:
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Add your direct monthly expenses (food, utilities, transportation, etc.).
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Calculate just one month’s worth of monthly indirect expenses (e.g. mortgage: divide the annual amount by 12).
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Add monthly subscription
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Creates the sum of all three categories above
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Add a buffer of 10% of the total amount (e.g. $5000 = $500)
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Add the last two categories to create a grand total. This is your monthly FIN.
Analyze your investment goals using your FIN number. It’s a great starting point for building a passive income portfolio.
Types of passive income
The concept of passive income can be divided into two main categories:
1. Income from investments: This involves investing money in assets and businesses such as stocks, real estate, and mutual funds.
2. Resource-based income: This includes leveraging the assets you own, such as renting out real estate or monetizing your skillset with digital products.
10 Strategies to Build a Passive Income Portfolio
You don’t necessarily need to invest a lot of money to get started. Many passive income strategies can be started with minimal capital, but require creativity and commitment.
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Energy investments (oil and gas): A passive income elite, a very lucrative market, and high returns.
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Rental properties: High profitability, but requires management
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Money market account: Low-yield interest-bearing savings account
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Index funds: Diversify your investments in the stock market without any effort
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Dividend stocks: Invest in companies that pay regular dividends
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Investing in small and medium-sized enterprises: Leverage local company stock
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Content creation: Leverage your expertise to create and sell digital products
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Creative works: Monetize your artistic talent through platforms like Etsy and Shutterstock
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Affiliate marketing: Earn commissions by marketing your products on your blog or website
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Asset rental: Earn money by renting out real estate, vehicles, and equipment
Related: Anyone Can Easily Start a Passive Income Side Hustle to Make Money – But Only If You Know These 5 Top Tips First.
risk tolerance
To understand the right passive income sources to start building your portfolio, you need to know your risk tolerance. Risk tolerance refers to how much risk you can tolerate without affecting your financial security. There are some great risk tolerance calculators online that can help you analyze this. confirm Complete this step before you start in earnest.
Certified Investment – Top Level Growth
Just as not all passive income sources are created equal, some income sources require you to reach certain milestones in order to take advantage of them. These streams often require you to become an accredited investor. Simply put, being an accredited investor means that he meets one of two criteria:
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you have annual income You have earned more than $200,000 (or $300,000 with your spouse) in the past two years and expect to earn a similar amount next year.and/or
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you have net worth If it exceeds $1 million (does not include the price of the primary residence).
Investments that provide higher returns typically require reaching this status. This is because they are often done outside the market and carry higher risks than public investments. However, just because the risk is high does not mean that the risk itself is high. It’s just that it’s riskier than investments offered to the public. First, learn what accredited investing is and aim for it as a long-term investment goal.
Final tip — gain knowledge
Now that we’ve introduced you to the concept of passive income and you understand the basics, it’s time to learn more. There are some great resources to expand on this article. Download the passive income audiobook and play it in your car on your daily commute. Small daily growth leads to big results.
There are also some great investment groups online that you can join. Hearing other people’s perspectives and approaches to creating passive income can inspire you to take action on your own financial journey.
As always, take action today! Watch another video on passive income to start learning more information on this topic. Beyond investment, education is your greatest asset. With knowledge, nothing can stop you. I’m rooting for you as you start your journey to financial freedom from the sidelines. Aim for safe and smart asset formation!
Related: 8 ways to make money while you sleep
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