“Happiness is positive cash flow.”-Fred Adler, venture capitalist.
In a recent blog post, we discussed the different options for building an online income stream in quarantine. And now, we’re going to talk more about passive income and the benefits of having a side hustle without the hassle.
From a financial perspective, your retirement income (however far off that may be) is meant to be a passive income. That means that the income isn’t derived from labor…yet passive income can take some work on the front end to get the ball rolling. The most typical retirement scenario, of course, is to draw an income from one’s savings or retirement fund.
And even more “typical” is the advice to throw those savings into an asset with ties to the stock market, which can put your money at unnecessary risk. The good news is that there are strategies for passive income which can be implemented at any time without correlation to the stock market. The even better news is that some passive income can be created with little to no money by leveraging time, skill, and research.
If you’re working from home, or looking for a way to boost your income with minimal contact, these tips can help you build wealth.
Find Your “Mentors”
Thought leaders and entrepreneurs like Robert Kiyosaki, author of Rich Dad, Poor Dad, suggest passive income as something to strive for before retirement. He writes, “My rich dad taught me to focus on passive income and spend my time acquiring the assets that provide passive or long term residual income…”
Tim Ferriss of The Four Hour Workweek calls for entrepreneurs to start businesses with the ultimate goal of cashflow and freedom of time. And anyone can become an entrepreneur.
Both of the above authors have an endgame in mind that doesn’t fit the typical narrative. They’re not pining for retirement, instead they’re reaching for a better life that’s full of possibilities, right now.
As you look to create your own passive income, choose your mentors wisely. Look to those who are grounded in the present and see that life of possibilities, rather than continually putting things off to the future. Saving for retirement is important, of course, yet you shouldn’t have to forgo your life now in hopes of the perfect retirement. Following the stories and examples of your “wealth mentors” can help you as you embark on the same path.
Creating (Passive) Income in Quarantine
When it comes to creating income in quarantine, know that passive income isn’t always instantaneous. In conjunction with our previous income guide, these examples can help you develop income streams that will last. First, they take a little work.
These examples all have their pros and cons, and diversifying these different income streams is often a sound pathway.
Bonds are a fancy version of an “IOU.” Investing in a bond is a way of lending money to an organization, city, government, or company. You’ll earn interest off of this bond, and receive the principle back once it expires.
Although bonds are widely considered to be a “safe” investment, you can lose money in bonds. It’s important to carefully consider the financial circumstances of the issuer.
2. Stock/Policy Dividends
A dividend is money that is paid to shareholders on a regular basis from a company’s profits and/or reserves. In what is essentially a profit-sharing plan, dividends are distributed on an agreed-upon basis. Often quarterly, dividends can also be paid annually or monthly.
Very few stocks pay a substantial amount in dividends, even with a history of regular history of dividend payments. That’s primarily because neither dividends nor the value of the stock are guaranteed.
However, owners of participating life insurance policies (whole life insurance) also receive dividends. These are regarded as a return of unused premium, yet function in the same “profit-sharing” model as stock dividends. The size of these policy dividends will usually grow as the policy ages and the cash value increases. These policy dividends, especially in later years, can be received as an annual income source. Though not guaranteed, policy dividends are historically reliable.
Annuity contracts are issued by insurance companies, and deliver regular payments. These can be included in an income portfolio, as they deliver regular payouts. Annuities can sometimes even deliver lifetime payouts.
These complex products have some downsides, and are not recommended for younger investors, yet can provide a substantial income for those in their 70s and beyond.
4. Private lending
Becoming a private lender can be a great way to invest without the hard work that goes into real estate or other big cash flowing projects. As a lender, you simply loan money to those who will repay it with interest. Real estate bridge loans are a good example, and using a trustworthy broker is key. Peer-to-peer platforms can also offer ways to invest, especially if you don’t have a lot to invest.
Mineral rights leases are yet another form of private lending, and can provide an excellent source of income. The risks to be aware of include loss of capital if the money isn’t repaid. That’s why all deals must be properly vetted.
Real estate and equipment rental agreements can offer income that is mostly passive. So long as rental income exceeds the cost of ownership (of the property or equipment), steady cash flow is yours. In fact, even a relatively modest investment can put you on the path to great investments. Mortgage financing will allow you to purchase a property with only a down payment, giving you more options. For more tips on real estate investing, check out this blog post.
If you write a book, record a song, or produce other intellectual property, you can collect royalties for life. Royalties are payments made to the owner of a copyrighted work, and are represent a percent of the publisher or producer’s profits. Any such work will result in royalties anytime a sale of the property is made. The more you produce, the more you can enjoy these royalties. Self-publishing is also an inexpensive route that allows you to keep more of the royalties.
7. Franchising, licensing, and fees
Licensing fees are paid for the privilege of using a “brand”—be it product or service. They are another form of royalties, and depending on the compensation agreement, sales representatives and brokers can even receive these royalties from commissions and renewal fees even after retirement.
8. Limited partnership
Limited partnerships are when businesses have partners who are investors only. These partners have no management responsibilities, and have no responsibility to the company’s debt obligations. Investments like oil and gas operate this way, as do some others.
9. Passive Income Businesses
These are business models that operate in a similar way to real estate ownership. Vending machines, laundromats, and ATMs are all examples of this passive business model. A small, up-front investment is required, and little time requirement after that.
10. Online Business Models
There’s nothing quite like online businesses right now. There’s no one way to go about building an online business: affiliate marketing, advertising, online courses, and other options can all provide a passive income stream once established. The up-front effort is essential, and does not guarantee income, yet there are many success stories out there.
If you’re really passionate about something, and have already begun to build an online platform of loyal fans—through a blog, YouTube channel, or otherwise—the above options can be an effective way to create additional income.
11. Network Marketing
Many networkers manage to generate a few hundred a month, which can supplement their lifestyles. Even more aspire to join the big leagues, where they can ear six-figures or more of residual income. It’s important to be cautious of which programs are worth your time, and note that most high earners are the exception, not the rule.
Are you Ready for Passive Income?
Creating passive income streams is not as simple as simply saving more money. Yet the potential returns from these various income streams are far greater than the returns you may see on a savings account. As Cashflow is one of the 12 Principles of Prosperity, it’s important to practice and aim for it now, and not shrug it off until a later date.
Prosperity is within reach, and by developing passive income streams at any stage in life, you prepare yourself for all the opportunities that may come your way.
To get in touch with a Prosperity Economics Advisor, who can help you get into a cash flowing position, click here.