Regardless of who you are or what your employment and financial situation is, passive income makes sense for everyone. But what makes it different, and why should we want to prioritize earning passive income over say regular active income? Well it has some distinctive advantages over your standard run-of-the-mill active income. It can also be a great supplemental addition to your other sources of income. So without further adieu we’ll jump into three big advantages of passive income.
Ongoing, recurring, low effort income
The biggest, and most obvious reason why you should want to earn passive income is that you’ll have extra money your pockets. Who doesn’t want that? Combine with the fact that you have to do very little to keep it coming in on a regular basis and you’ve got the closest thing to ‘free’ money that you’re likely to see since your parents gave you allowance when you were young. I can’t imagine anyone saying ‘no thank you’ to ongoing low effort supplemental income. In the end this type of supplemental income will mean that you can save for the future AND live in the now.
Once you have that passive income stream setup it can keep paying you every month, and while you might need to give it a little TLC on occasion to keep it working as efficiently as possible, most of your time and effort was spent getting it setup up front. You then have the ability to reinvest those earnings and start earning compound interest, continuing to grow and grow, building steam along the way.
Be able to do those things that you would normally reserve for retirement when you’re younger
We all have hopes and dreams and goals for the future, but all too often we bottle them up and tuck them aside in the retirement category. We tell ourselves that we’ll work hard when we’re young and then one day when we’re 55 or 60 or 65 we’ll decide to stop working, and have all of the financial security we need to live it up for the rest of our lives. It sounds nice and it gives us something to strive for, but there’s a couple issues with it.
First, a lot of folks don’t end up having the necessary amount of retirement savings when they do decide to retire.
Second, as we get older we’re more prone to health issues.
Wouldn’t it be great if we could do all of those things at a younger age? Why don’t more people try to do that? Is it that people take on higher loads of debt when they are younger, with education loans, mortgages, and putting kids thru school? If that’s the case then people feel locked down to their job because that’s their source of financial security, but what if you get laid off or the business shuts down? Passive income can give us the freedom to start to live the life we want to live, and experience the things we want to experience before retirement.
Options and Stability
In much the same way that a person diversifies their portfolio, diversifying your income sources reduces risk and offers you stability. Stability in the form of multiple income sources, protection from sudden job loss, or the unexpected inability to perform your job duties. Multiple sources of income means that you’re mitigating the risk of losing any one of them without enduring major financial hardship.
It also gives you options. What would it mean for you if your passive income accounted for 10% of your monthly income? What about 25%? What if it was half of your monthly income? Once you get to that 50% mark that means that you don’t have to work anymore (assuming that you currently make enough to make ends meet). In this way passive income can mean financial freedom.
What would it mean to you?
So those are three big reasons why passive income is something that everyone should be interested in. But the bigger questions is what could passive income mean to you? Ask yourself some of the following questions:
- How much passive income would you need to make before you would consider working less?
- What would you do with yourself and with your time?
- Do you crave a better work life balance, and if so how much is that worth to you?
- Would you stick around in a job that you don’t like if you weren’t tied down to it financially?
- Maybe you love your regular job, what would this extra income mean for you?
- Would you invest it, go on a vacation, or buy a new home?
Hopefully your answers to these questions will get you thinking about how passive income sources could positively impact your situation.