Aging is inevitable, and part of the American Dream is to be able to retire when we reach our golden years, or earlier, with financial security.
One of the hottest topics in the financial world is passive income. It seems like almost everyone in this space is reading, writing, and working towards it. So what exactly is passive income? In short, passive income is cash flow generated from investments without you actively working for it. It is essential for generating wealth and financial security.
A typical example is owning a piece of real estate and collecting monthly rent from it. While attaining these types of assets may seem far-fetched, it is entirely possible if you utilize the right resources. Passive income is one of the secret weapons of the wealthy, and you too can enjoy the benefits!
Passive income is one of the secret weapons of the wealthy, and you too can enjoy the benefits!
Your Income is Always at Risk
Many people assume their thriving business or a steady job will generate income indefinitely. What they fail to acknowledge is no matter what you do to pay your bills, it could all go away in a flash. People are laid off every day, companies frequently go under at unexpected moments, and sometimes people are incapacitated preventing them from being able to work.
This assertion is not meant to scare you. Instead, the intent is to motivate you to create a more versatile and reliable income generating system. Passive income streams are imperative to achieving greater stability and security.
Not only will this lead to greater wealth, but it will also safeguard you in times of tragedy. How long would your current finances sustain you if you were unable to work for an extended period? If you lose your primary source of income, your passive streams can keep you afloat until you figure out your next move.
More Money to Invest
Almost everyone is familiar with the power of compound interest. Generally speaking, every time you collect a return on your asset, you then have more money to invest. This effect results in higher returns the next time, and the process takes place over and over again. While it may not seem significant over a short time frame, compound interest is massively important when you have multiple decades to invest.
The most effective way to utilize compound interest is with passive income investments. They allow you to extract cash out of your asset, reinvest that capital and make your income stream even stronger. Rather than setting up this type of system when you’re approaching retirement, your best bet is starting as early as possible. Doing so will maximize the benefits of compound interest to grow your income source to a significant size before you ever have to use it.
The Precarious Future of Social Security
Many people factor in their social security payments when planning for retirement. Unfortunately, most of them will find themselves disappointed and insufficiently funded once they reach retirement age.
Experts believe social security will “run out” sometime in the next 25 years leaving benefits drastically reduced or eliminated completely. Take heed now and avoid this trap by setting up passive income streams. If you do end up receiving social security benefits, they can be icing on the cake rather than an essential source of income.
When people wait until retirement to attempt to generate passive income, they can end up putting in a significant amount of time to make it work. That doesn’t sound like much of a retirement. Make developing your passive income sources a priority while you’re still young so you can enjoy relaxing during your golden years of retirement.
Perhaps the most significant mistake people make is failing to set up sources of passive income at all. Instead, they try to live off of a nest egg and stress about it running out.
Those with passive income investments don’t have to worry about dwindling funds because their wealth continues to grow through retirement. These assets put your money to work for you, so when you retire, you no longer have to work for your money. Invest now for passive income to alleviate the stress and strain of living off a fixed income.
The highest tax rate you’ll experience in the financial world is the one that cuts into your paycheck. Depending on where you live, the percentage could reach 50% or above resulting in your income being much lower than you might think.
Fortunately, income-generating investments do not suffer the same fate. While you pay some taxes, favorable tax laws allow you to keep a significant portion of your wealth. Real estate investments, in particular, enjoy many tax benefits.
Building passive income takes time, but with the right resources and focus, you can generate a substantial amount of passive income. You can end up with an income stream larger than your job or business allowing you to retire early or transition into a low-hours, high-income phase of your career. Passive income allows you the freedom to pursue other passions you may not have had time for while working full time.
The Next Generation
Wealthy individuals tend to look beyond themselves and towards the next generation. Conventional nest eggs will not lead to generational wealth. Instead, that sum of cash is typically depleted through retirement leaving very little or nothing to pass along to your heirs.
The alternative is investing in assets to generate passive income.
The beauty of this is it allows you to pass on a valuable, cash-generating asset, rather than a lump sum with multiple favorable outcomes. One is your money will grow in value rather than slowly shrinking due to inflation or depletion. Also, the next generation will inherit the passive income stream you’ve built and benefit massively from it.
One last thing to note about passive income is it is more attainable than it might seem. Perhaps the best way to generate passive income is through private real estate funds.
Perhaps the best way to generate passive income is through private real estate funds.
This method comes with many benefits.
You tap into the fund managers’ expertise without expending large amounts of your time researching markets. You can buy in at a relatively low price because you do not need to front the cost of entire properties. Private real estate funds also allow you to avoid the hassle of daily property management, dealing with tenants, renovations, and repairs, making your asset genuinely passive.
Investing for passive income streams now could be one of the defining choices of your investing career, so don’t hesitate.
Start prioritizing passive income today, and you can reap the benefits for the rest of your life, and you will have the freedom to enjoy your golden years.