Do you realize how powerful passive income really is? Do you?
I bet you know generally what passive income is, but have you really weighed out how passive income could change your entire life — in ways you likely never thought possible?
What would you do with your time if you didn’t have to work a full-time job?
The Definition of Passive Income
According to Wikipedia (one of my favorite go-to’s!), Passive Income is defined as:
Income is received on a regular basis, with little effort required to maintain it.
What does this really mean? This means you don’t have to work (or put the effort in) for your income. I know you probably could decipher this on your own, but I want to elaborate more on this because I doubt most of you have really taken the time to think about the reality of how big this really is.
How Can You Get Passive Income?
There are two main ways you can earn passive income:
- Start a business
Easy enough, huh? Well, you can’t just invest in anything or start any kind of business and get passive income from it. Well, maybe you can, but you have to know how to do it right in order to make sure you are actually getting passive income and you aren’t working for the income.
Invest. If you make an investment, you have to make sure the income from it really is going to be passive. This would be in contrast to active income. What’s the difference, exactly? The question to ask yourself is: Do you have to work to get the income? The biggest example of active income investing and passive income investing in real estate is flipping versus rental properties, respectively. With flipping, you are required to do active work in order for the income to appear. With rental properties, in theory, you don’t have to do any work for that income to come in (also assuming the correct setup). The IRS agrees with these assumptions about both types of investing because they label the income from each as either active or passive, and each type of income has completely different taxation.
There is room to make active income investing passive, however. For instance, flipping properties can be extremely lucrative. Why pass up that kind of income, if you have an interest and skill in flipping, if what you really want is passive income? In this case, there are two ways to make flipping, which is active income, and passive:
- Invest whatever income you earn from flipping directly into passive income investments.
- Outsource as much of your flipping business as you can, until eventually all of the work required to earn the income is being covered by people other than yourself.
Once you do either of those with your active income investments, you have learned to master the art of passive income! The latter option, outsourcing, leads to the second option for getting passive income:
Start a business. This won’t happen initially in whatever business you start, but you eventually have to get to where the majority of your business is outsourced. Therefore, the income you receive from the business is money you didn’t specifically have to work for. That doesn’t mean, nor does it with outsourcing your flipping business, that you can’t be involved at all in order for the income to be passive, but you should be at a point with it that you’ve outsourced enough so that if you disappear for a month or two, or a year, a business will remain just as profitable as it did when you were around.
Once You Have Passive Income, Then What?
Okay, now here is the fun part. And I want all of you involved in this part, as well, in the comments.
Not having to rely on a full-time job means you have enough passive income, whether through real estate investing or running an outsourced business (can be an outsourced real estate investing business, too!) to pay all of your bills by doing… not a lot!
I’m going to start a list of things you can do once you don’t have to rely on a full-time job. Once I’ve started it, I want you to jump in and add either things you do now because you have passive income that allows you freedom from a real job, OR add things you would do if you didn’t have to have a real job!
Ready? Here we go.
- Sleep in! Omg, you can sleep in all you want — which may not appeal to everyone, but for those of us night owls — you hear me!
- Unlimited travel. No more asking for vacation time, no schedules to work around, no limitation on how long you can be gone, and you don’t have to report to anyone where you are going and for how long. In fact, you can change your mind as much as you want on how long you will be gone, even after you are there!
- Say yes to lunch dates. If you have a friend who wants to do lunch, you can say yes! You don’t have to be anywhere else.
- Say yes to out-of-towners. Does someone want to come to visit you? You can say yes now! Even if it’s during the weekdays and not just the weekend! Woohoo.
- Hobbies and activities. Now you have time to do whatever hobbies and activities you have always wanted to do but didn’t have the time to do or the energy left over after your real job. This may even be as simple as going to the gym — now you don’t have to only hit the gym during really crowded times when you can’t get a machine! You can go at noon if you want. Or you can go at noon one day, 3 pm another day, morning another day… it doesn’t matter! You pick.
- Learn. Learn what? Learn anything! Go back to school for some random topic that you never went to school for before because you were worried about it not looking good enough on your resume. Or go to classes for something totally off the wall and learn a new skill! Learn a new language, learn to dance, learn history, psychology… learn anything!
- Volunteer. Ever wanted to help out with a good cause but didn’t have time? Ever wanted to volunteer your time doing things locally, like coaching a kids’ sports team or teaching after-school classes, or being a local dog walker? Now you can do any of those.
- Commuting. Or lack thereof! No more worries about traffic, you can drive whenever you want!
- Primary house. It can be absolutely anywhere you want it to be. You no longer have to live where is accessible to your job. This may be one of the most powerful things on this list!
- Wardrobe. You can officially dress however you want. You can even be covered in tattoos and piercings if you want because you don’t have a boss to yell at you. You never have to match an expected look in terms of your wardrobe again!
This is only a start to the list of what freedoms you can have when you build passive income. There are so many out there. This list is just things that really click with me. You may have completely different freedoms (and tell us what they are in the comments)!
I know what you are thinking. It will take so long to have that much passive income, though! Yes, it is going to take a lot of hard work and it will take some time, but it’s not unrealistic either. Plus, you can start building it in pieces. For instance, I started my real estate career by investing in rental properties (which is passive), but then I ended up starting a business, which is my main income driver.
My rental properties give me great income, but I don’t have enough of them to fund my entire life (which will take a while since I live in LA where the cost of living is atrocious, and I have an expensive outdoor and travel bug embedded in me). My business, though, is 100% online so all I need to work is an internet connection. That ability alone gives me all of the above options in terms of taking advantage of a passive income life.
See how that works? A piece of passive income here, a piece of passive income there, and with mobility? I’m free! I even started back to school this past year just for the heck of it. Why? Because I can!
I will tell you, though, had I not quit my 9-5 job so fast to start my business, I could have kept buying properties, and had I done that, I could have easily had most of my bills covered with just those! I chose the “starting a business” route instead, but you don’t have to do that. You can just keep buying passive income real estate investments. As long as you are buying good cash-flowing properties, you don’t have to buy as many or invest as much money as you think. Still, think you’d have to buy too many for it to be feasible? No way.
This article is obviously not a how-to on the specifics of passive real estate investing, but an overview of how powerful passive income can really be is worth taking a look at. I don’t think most people really comprehend how crazy-powerful this really is. If everyone did, there’d be more of us out there!
Source: BiggerPockets.com ~ Author: Ali Boone