Introduction to Passive Income
Everybody likes money. Me telling you that is about as shocking as me telling you that Black folks like Hennessy or Mexicans like Coronas...
Everybody likes money. Me telling you that is about as shocking as me telling you that Black folks like Hennessy or Mexicans like Coronas. The problem is that 99% of folks don't like what they have to do to make money. There is absolutely nothing wrong with taking a not-so-dream job for the sake of keeping a roof over your head and bacon (or avocados for you vegans out there) on the table. The limitation is that most folks make a set amount of money each year, and that's that. If they want more, they have to find a better paying job; and if it were that easy, everybody would do it. There's where passive income comes into the picture. Defining Passive Income Passive income is a broad term used to describe money that takes little to no effort to generate. Once the initial work is put in, you sit back and let the money work for you. Having a source of passive income is important because it allows you to maximize your time how you want to. If you want to spend your time sitting on your ass watching Netflix (which you probably do now), you can do that; if you want to spend extra time with your younger children, you can do that; if you want to spend your time working and making more money (spoiler alert: you probably should), you can do that. Hell, if you want to sit around all day in a four-cornered room staring at candles, you can do that, too. The point is that it doesn't matter what you want to do, having passive income can give you the time you need to do it. Passive income generally falls into one of two categories: those that require money to start, and those that only need time and effort to start. Yes, it often takes money to make money, but many folks would be surprised to know they can start earning passive income without needing thousands of dollars to begin. Even passive income streams that take money to begin can be done with small amounts of money. Passive Income That Requires Money Creflo Dollar didn't actually say that, but I ain't forgot about son asking his church congregation for $65 million for a private jet. Anywho—if you're broke as hell and down to your last dollar, you can gon' head and skip to the next section; this info might not be relevant to you. If you're broke as hell, down to your last, but have folks you can ask for money, you're in the right place. Using someone else's money is not always the best choice because your margin for error gets thinner than European models, but it can work. The majority of folks use their 9-to-5 to get enough money to fund these types of activities. Dividend Stocks and Bonds One of the simplest ways to generate passive income is to invest in stocks that pay out dividends or bonds that will pay you interest. It takes time upfront to research and choose which companies you want to invest in, but once that's done, you can generally expect to sit back and let the money roll in (kinda). Of course, there's a risk with any investment, especially stocks. If your focus is on generating another stream of income, focus on blue-chip stocks that payout steady dividends, and are relatively safe. Blue-chip stocks are older, well-established companies that usually thrive no matter the economic times—such as companies like Coca-Cola, Disney, and Microsoft. If you want to go the bond route, choose safer bonds with at least an A-/A3 bond rating (see the chart below). Certificate of Deposits (CDs) A CD is basically debt issued out by a bank to folks who want to "lend" out their savings and earn some extra cash. When you buy you a CD, you loan the bank money for a pre-determined length of time at a specific interest rate. The longer you're willing to lend them money, the higher the interest rate is liable to be. During that time, the bank pays you periodic interest payments and then returns the original amount (called the principal) back to you. CDs are insured up to $250,000, so any amount below that is 100% risk-free. The problem is that once you buy a CD, you're essentially locking your money away for that time period; any withdrawal will likely result in a penalty. Money Markets Money Markets can either be accounts or funds, and they work like regular savings accounts, just with higher interest rates. The jig, however, is that they have strict withdrawal rules, such as limited withdrawals and transfers. The interest rates offered on money markets usually increase with the amount of money put into the account, so they're not as beneficial to broker folks. The one benefit is that it's easier to access your money with money markets than CDs. Real Estate Property Real estate is one of the more popular ways of generating passive income, but it tends to be expensive to get started. However, if you have the funds available, investing in a rental property can get you a lucrative return. It's not all sweet, though; you run the risk of the property remaining vacant, choosing a bad location, or losing money over time after paying for expenses, taxes, and mortgage payments. Passive Income Requiring Time and Effort If you're looking to make passive income but have a limited budget, you've come to the right place, fellow brokey. Most passive income that requires little money to begin comes from creating original works and content. Creative Royalties This could be royalties from a book you wrote, a song you recorded, or any other publication where you could get a cut of the profits. These options aren't always free, however. It may take money to produce the book (hiring designers, editors, etc.), record the song (buying studio time or equipment), or printing the publication (distribution costs), but these costs are relatively low compared to things like real estate. Blog or Website Advertisements With the rise of the Internet has come a way to earn passive income by selling online advertisements on a blog or website that generates a lot of traffic. If you create content folks like, they will keep coming to your site, and the more eyeballs on your site, the more you can charge businesses to advertise. That's the foundation of a lot of businesses. Take Facebook and Google, for example. They're able to offer free services to consumers because advertisers want access to the billions of folks who use their platforms—and they pay a helluva lot for it. Of course, your blog or website isn't likely to get to that scale, but if you have a niche audience, advertisers will pay. If you have an audience that's predominantly Black women age 21–30, and I'm a business with a target audience of Black women age 21–30, then guess what? You just might be in luck. Intellectual Property You can also receive money from your intellectual property, such as inventions and patents. Of course, not everybody is destined to be the next Thomas Edison or anything like that, but anything you've created can be patented—regardless of how small or insignificant you may think it is. Even if it's not applicable now, you never know when somebody will need to use something you've patented. The Final Word This may be able to go without saying, but until your passive income comfortably surpasses your expenses, STICK TO YOUR DAY JOB. For the overwhelming majority of folks, passive income is meant to supplement their other income, not completely replace it. If you're in a position to bring in multiple streams of incoming—including your day job—do just that. You won't always be able to work; take advantage of it while you can.
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