The secret to how people retire early or have greater options in life or gain financial independence is simply passive income. Most folks in the US retire off social security, a small pension and/or small withdrawals from a 401k built up over many years. But what if you could build passive income machines 10 or 20 years before your 65th birthday!
Every wealthy person I have met has various passive income “machines”. These “machines” may take management on occasion, but they do not take daily or constant work on your part. They do typically take hard work on the front end to set up properly. But after they are set up, they produce money and income as you sleep. If you seek F.I.R.E. (Financial Independence Retire Early) or perhaps you just seek more flexibility and freedom, you must build passive income machines.
Make money while you nap.
Here are seven popular passive income “machines” used to generate extra income, some are quite easy to get started and simply require an initial investment, others would take many years to structure and put in place:
One of the main ways people create passive income for their future self is by each and every month adding to an individual retirement account (IRA) or 410k through their employer. The trifecta of dollar cost averaging, a company match and compounding have a powerful wealth building effect!
With these amounts saved, one can generate a certain amount of “passive income” from their investment account. For example, with about $1 million invested, a person can generate about $40k a year in income with a low probability of depleting the account too quickly.
2. Rent Out Extra Space
I have used Airbnb and had friends that have rented extra rooms to foreign exchange students. Again, this is a straightforward way to turn a liability (housing) into an asset that generates cashflow. With Airbnb you can closely screen prospective guests.
3. Invest In Private Real Estate Deals
Real Estate is probably the oldest form of passive income. But it typically takes large amounts of capital to start enjoying the passive income gains. But not anymore with the miracle of technology and crowdfunding. With platforms like Fundraise.com, for as little as $1,000 you can invest in real estate developments all over the country that are professionally constructed and managed. I personally use this platform to earn 10% returns and so far it has been great.
4. Dividend Paying Stocks
Here at The Money Vikings we feature a lot of posts about dividend paying stocks. One reason is that these are a simple and straightforward way to start creating passive income flows. There are many advantages to this approach. For one, it can be done almost instantly. If a person goes onto Robinhood, they can buy a share of a dividend King like Johnson & Johnson or Kraft Heinz and receive passive income almost instantly.
We like following the Dividend Diplomats who chronicle their journey to create large dividend portfolios that provide significant income to live on. They are building positions in publicly traded companies a few shares at a time.
5. Traditional Rental Property
One of the classic passive income plays is real estate rental property, both residential and commercial. But this can be challenging for the average investor. It typically takes a large amount of initial capital and time to make this machine work properly. One tactic that works is over the years make sure to hold onto properties previously purchased and renting them out. This way you can test the waters and see if you have the patience, skills and resources to rent out property. This takes people skills, business skills and some knowledge of maintaining a property. Remember as the landlord you deal with the late night calls that the pipe burst or water heater crashed.
6. Start a Blog
Jerry and I started The Money Vikings blog last December 2017. Our mission is to learn, inspire, teach and achieve new levels of wealth and financial freedom. We share ideas with others to inspire them to do the same and build a healthy, productive life and community. By inspiring and motivating each other we have already achieved new levels of net worth and passive income on our journey to “conquer financial freedom!”
Starting a blog is a huge labor of love and takes time and commitment. I would advise a person to discover a topic they are passionate about and that others are interested in. This is the only way you will stick with it and hopefully help and inspire others along the way. Blogs are monetized through placement of ads or affiliate links depending on the main topics of your blog. Even if you do not earn any money at it, blogging is a fun, creative and value added adventure in my opinion.
HOW TO GET STARTED:
a. Pick a topic you are passionate about, learn to write well and structure your thoughts and ensure others are also interested in the topic.
b. Pick a good domain name, think about creating a brand identity, sign up with WordPress and find a host for the domain name.
c. Research and write good quality content that helps people. Engage with others on social media.
e. Apply for adsense or other advertisement platform to monetize.
7. 12 Month CDs
Does anyone remember the era when you could earn 3-5% on a certificate of deposit (CD) at a bank? With interest rates rising there may be some relief in site and CD rates should begin to gradually rise. The best I could find at the moment are CD’s offering 2.55% max.
There are of course other forms of passive income. Social security is a nice form of passive income, but you have to wait a long time to collect on that one. There are also risky passive income ideas like crypto currencies, but these seem to have some maturing and development required. There is also development of intellectual property and patents. This can include books, inventions, artwork, etc that pays a royalty. You may want to be building other sources step by step during your working years in order to accelerate your path to financial independence!