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In a world where financial stability can seem like a distant dream, taking control of your financial future is more important than ever. Passive income isn’t just a buzzword. is a strategic approach to diversifying your income streams and ensuring financial independence.
At its core, passive income is about making your money work for you. It’s income earned with minimal ongoing effort, in stark contrast to the 9-to-5 grind. The beauty of passive income is its ability to build profits over time, often with an initial investment of time or resources.
Related: 5 Ways Passive Income Can Help Change Your Financial Future
Understanding passive income
Passive income is not synonymous with “no effort”. It usually involves an initial investment of time, effort or capital. But once established, these income streams require much less active involvement compared to a traditional job.
You will never be truly financially free if you are working. Financial freedom means that you are free to pursue anything in your life without financial constraints. This is how passive income is so monumental to your financial growth. To be financially free, you MUST have a passive income portfolio. Over time, these currents can grow and merge. This offers you not only stability but also the opportunity for exponential wealth growth.
Finding your Financial Independence Number (FIN)
The Financial Independence Number (FIN) is your amount of money needed from passive income sources to not rely on traditional active income. In other words, it’s the amount you need to make from your passive income sources to cover your expenses without having to work. To find your FIN you want:
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Add up your direct monthly expenses (food, utilities, transportation, etc.)
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Calculate your indirect monthly expenses for just one month (e.g. mortgage: divide annual amount by 12)
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Add your monthly subscriptions
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Create a sum of all three categories above
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Add a buffer of 10% of the total amount (eg $5000 = $500)
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Add the last two categories to create the grand total — this is your monthly FIN
Use your FIN number to analyze your investment goals. It’s a great starting point to build your passive income portfolio.
Types of passive income
The concept of passive income can be divided into two main categories:
1. Investment Driven Income: This includes putting your money into assets or businesses such as stocks, real estate or mutual funds.
2. Resource-Based Income: This includes leveraging assets you own, such as rental properties or monetizing a skill set through digital products.
10 Strategies for Building Your Passive Income Portfolio
Getting started does not necessarily require a large financial investment. Many passive income strategies can be started with minimal resources, but require your creativity and commitment.
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Energy investments (oil and natural gas): The elite of passive income, the very lucrative market and high returns.
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Rental properties: Potentially lucrative but requires management
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Money Market Accounts: A savings account with a lower interest rate
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Index Funds: A low effort, diversified investment in the stock market
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Dividends: Invest in companies that pay regular dividends
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Small Business Investments: Leverage equity stakes in local businesses
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Content creation: Leverage your expertise to create and sell digital products
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Creative works: Monetize artistic talent through platforms like Etsy or Shutterstock
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Affiliate marketing: Earn commissions marketing products on your blog or website
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Asset Rentals: Generate income by renting properties, vehicles or equipment
Related: Anyone Can Start a Passive Income for Easy Money — But Only If You Know These 5 Key Tips First.
Risk tolerance
To understand the right source of passive income to start building your portfolio, you need to know your risk tolerance. Risk tolerance refers to how much risk you can take without affecting your financial security. There are some great risk tolerance calculators online that can break this down for you. Make sure complete this step before diving.
Accredited Investments — Top Tier Development
Now, as all passive income streams are not created equal, some require you to reach certain milestones in order to engage with them. These streams often require you to be an accredited investor. Simply put, being an accredited investor means you meet one of the two criteria below:
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You have a annual income make more than $200,000 (or $300,000 jointly with a spouse) in the past two years, expecting the same next year. and the
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You have a net value that exceeds $1 million, not including the value of your primary residence.
Higher yielding investments usually require you to reach this status. This is because they are often off-market and carry higher risk compared to public investments. But just because they have higher risk doesn’t mean the risk itself is high – it just means it’s higher than publicly available investments. Start by educating yourself on what accredited investing is and aim for that as your long-term investment goal.
Final advice – educate yourself
Now that I’ve introduced you to the concept of passive income and you know the basics, it’s time to learn more. There are some great resources out there that can walk you through this article in more detail. Download an audiobook about passive income and play it in the car on your way to work every day. A small amount of growth daily will lead to great results.
There are also some great investment groups online that you can join. Hearing other people’s opinions and approaches to passive income generation can inspire you to take action on your own financial journey.
As always, take action today! Watch another video on passive income and start exposing yourself to more information on this topic. Beyond investment, your education is your greatest asset. With knowledge you are unstoppable. I cheer you on as you begin your journey of financial freedom from the sidelines. Here’s to safe and smart wealth generation!
Related: 8 Ways to Make Money While You Sleep
