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Let us take a step back first…
What is life made out of?
- Time alive (Quality of that time)
The above are all interlinked one way or another. People cannot live without time, and without energy, they cannot enjoy their time. Time alive is life. Life is great when you have experienced full of beautiful emotions. Sharing experiences makes them even more pleasurable and memorable and creates the best relationships. Best things in life are free.? Maybe. but it is easier to have many more experiences with money. To create money you need time. The catch is that you also need time to live and experience the word. The chicken and egg problem.
Passive income is here to the rescue. Passive income allows you to set up systems that give you the freedom of time.
So, what is passive income?
Automation of income,
Passive income is a tool to help you experience more of the world and experience a fuller life. The idea is creating or buying into a system which generates an income with little or none of your time. There is a spectrum of passive income opportunities, all of them require different energy in time either to create or to maintain.
What is the passive income mindset?
In order to live many people exchange time for money. The best 40 to 50 hours in a week are exchanged for income. The problem with selling time for money is that it leaves less time to live. Passive income allows you to earn an income passively so you can live more and work less. The system work on autopilot. There are different systems of passive income, and they each require a different amount of investment wither upfront or to maintain. One key aspect of the passive income mindset is delayed gratification. That is investing time and energy in something when the benefits can only be harvested weeks, months or even years later! The key advantage of passive income is it frees up your time to pursue whatever your dreams are; be it to live more or build or acquire even more streams of passive income.
What are the key differences between passive income assets?
Passive income assets have four main variables
- the expertise needed to buy and use the asset,
- their returns,
- the risk
- the amount of capital needed to buy the asset
- the amount of time is locked in for and the risk.
These four variables are interlinked. Each one of them affects the other. Some assets are simple and straightforward like US Short-term government Treasuries, these require little or no expertise. On the other hand, some expertise is needed to manage an orchard, a low maintenance asset that provides a passive income. To run a momentum bot trading securities requires a whole level of expertise. Risk and Return are interlinked the more risk an asset is, the higher the return. Passive income assets require either money or time to be invested upfront. Nothing is free. To turn a blog into a passive income asset, there needs to be a lot of time investment in the first years.
What are some passive income examples?
The line between passive income and a side hustle is blurred. Passive income is passive, and a side hustle is an active endeavour, but there are a lot of things in between!
- Low-risk: short-term treasury bills
- Medium Risk: Longer-term treasuries and Stocks
- Very risky: Agricultural investments
- Extremely risky: Cryptocurrencies Staking, Cryptocurrency mining and Masternode
Learn more on how to create a diversified passive income portfolio
Stocks represent fractional ownership of publicly traded companies. There are two ways to earn a passive income with stocks. The first is when dividends and issued. The second is when the shares rise in price and a capital gain is made. This investment is passive, but investors need to research the investments thoroughly to fund companies with solid business models and good opportunities for growth. After they buy the stock, it is essential to monitor their investment on a regular basis. Companies may no do well or fail, and their stock price will lose in value accordingly. Learn more about how to build a passive income ETF portfolio.
Bonds are loans made from a lender to a borrower. The borrower can be a government entity or a private company. The borrower will pay the interest, which is the passive income and finally all the capital investments. Bonds come with different risk, the higher the risk, the higher the returns. Borrowers defualt and they fail to pay the lenders the capital back. Learn more about bonds and how to invest in them
Rental properties offer a good opportunity for passive income because the tenants have to pay monthly rent. Landlords have expenses such as maintenance and taxes to pay. The profit is the difference between the rent and the other landlord expenses. Learn how to find a rental property investment suitable to your circumstances
Peer 2 peer loans
P2p loans are loans between borrowers and lenders managed by another an entity than a bank. Find out how to invest in your first p2p loan, and do understand the opportunities and the risks that this asset class can provide.
Other assets you can build that can generate a passive income:
Crypto Assets that can generate a passive income:
How much passive income is enough?
This depends on why you want a passive income stream
- augment your primary source of income
- save more for retirement
- save for your kid’s college tuition
- have a backup source of income in case of unemployment
- acquire financial freedom and escape the 9-5 lifestyle
If your goal is financial freedom, there are two main schools of thought. One is the frugal early retirement called leanFIRE and the other is the spend it lifestyle called the fatFire.
In your comments below let me know more about your passive income strategies.