Passive income is the path of the wealthy.
With non-passive income, you have to work a given amount of time and then get paid for that time. If you have a full-time job, this non-passive income is likely the type of income you get. You receive either a salary or a wage, and are given a set number of hours to work, and if you don’t work, you don’t get money.
With passive income, the income you receive is not directly related to the amount of time you spend. You put in some up-front time, and then the value that you create pays you back endlessly or at least for a long time. Examples include:
-Investing in stocks that pay dividends
-Writing a book that pays royalties
-Owning real estate that generates cash flow
-Making a musical album that sells well
-Creating a product and having someone sell it for you, or receiving royalties from an invented patent
-Building a website that has steady income and traffic
The power of passive income streams.
Why is passive income so powerful? Because it STACKS WELL. Non-passive income doesn’t stack well. You only have 24 hours in a day, and likely you want to eat, sleep, and relax for some of those hours. Unless you’re a CEO or a celebrity, your hours have a pretty finite cap on how much they are worth to others. If you have two passions, you can only work on one at a time, and can only get paid for one at a time.
Inversely, if you develop a book, a product, a website, or an investment that pays you back indefinitely with passive income, then you are free to develop another book, product, website, or investment and then add it to that first one, and then do it a third, fourth, and fifth time. Each stream of income requires an initial investment of time, money, or both, and may require some slight maintenance, but then they are left to build on top of each other. With money that is coupled to time, you can’t do both at the same time, but with passive income, you can.
I’m not saying you shouldn’t have a job. Most people need a job until they have built considerable wealth or start their own business. As long as you like your job and it pays well, then that’s fine. I have a job myself, and although I will retire earlier than average, I will work at it for longer than is financially necessary because it’s interesting and challenging. I’m just saying that while you work, it’s important to build passive income streams on the side. Investing in dividend stocks is likely the easiest of the various methods.
Once you build up enough passive income to support your bills, you’re financially free.