Staying financially secure these days isn’t easy. Experts say that many Americans are hard up for cash — this despite the fact that we work really hard (and perhaps even a little too hard) here in the US. So what’s going on? How can we make this work?
You don’t need to find more hours in the day to start earning and saving more. What you need is one or more source of passive income. Here’s what you need to know.
Your salary and savings aren’t your limitations
Working hard, budgeting carefully, and saving money is a great three-part plan for building a small nest egg — but it’s probably not enough to transform that nest egg into real wealth that you can retire on. Experts agree that saving simply is not enough on its own. The costs of housing, health care, higher education often wipe out any increases in salary. If you’re going to beat inflation and save enough to really live on, then you’re going to need to come up with ways to have your money make money for you.
Turning your money into more money means investing it and earning interest. But you can also have your money earn you cash in more immediate ways. Below, we’ll talk a bit about how you can create sources of passive income.
What is passive income?
Passive income is generally defined as any source of income or increased wealth that you don’t have to put much effort into earning. Working at your job is income, but not passive income. But you can find other ways to generate cash without putting in lots of elbow grease, and we’ll explore a couple below.
Passive income is valuable because it allows you to increase your earning power without increasing the time you spend on work — which is critical, especially for those of us who already work long hours. Plus, passive income can remain a viable way to make cash even after you’ve retired.
Investing and earning interest
One of the best ways to grow your wealth is to invest in stocks and other investment vehicles. It’s also a great way to earn passive income.
Stocks earn interest, of course, which allows you to passively grow your wealth and then cash in if and when you decide to sell your stocks. But some stocks also offer dividends, which are a clear-cut example of passive income. If you invest in stocks that offer cash dividends, you can then reinvest that cash and reap even bigger gains.
Real estate and other options
Investing in stocks is a great way to earn interest, but those with the means have a powerful alternative. Real estate properties can grow in value over time while also earning passive income for their owners in the form of rent payments.
Admittedly, being a landlord won’t feel quite as “passive” as other ways to make passive incomes. But your work will be made easier if you use landlord software solutions to do things such as set up a free rental application and run background checks on would-be tenants. And the work that you do will be rewarded when you earn passive income in the form of rent. Owning a rental property can be an effective way to build wealth, and you’ll also enjoy the benefits of owning a valuable asset — the property itself — which you could choose to sell later on. You could conceivably make big profits on rent and then sell the property for another profit when you choose to retire. With the real estate market looking pretty rosy, a story like this could easily become reality.