The Importance of Passive Income

Never depend on a single income. Make investments to create a second source. ~Warren Buffett

Do you work for an employer? Do you ever wonder what might happen if you lost your job? What would you do for income? Would you struggle to make payments on your mortgage, if you didn’t have a job? Then again, perhaps you’re one of the lucky ones who doesn’t depend on a single income because you’ve got passive income streams too? I say lucky but a better adjective might have been one of the ‘sensible’ ones.

Having all your eggs in one basket is a risky strategy. One mishap and you’ve lost everything. Where income is concerned it’s better to minimise risk by developing multiple streams of passive income. Income that you’re generating even when you’re sleeping. That’s what rich people do. They use their money to buy assets which in generate passive income for them.

An asset by definition is something from which an income is generated. For instance if you buy stock in a major corporation, essentially what you’re doing is becoming one of the owners of that business. Assuming that corporation is profitable then you get paid a share of the profit each year in the form of a dividend. Buy into the right companies at fair value and that will give you income streams from each company in which you own stock.

Property is another asset potentially. Buy a property with the aim of letting it out to tenants and again you generate an income stream. Similarly bonds are another asset class that generates income from the interest paid. All of this is passive income because it doesn’t require you trading your time in return for that income. Once you have the asset you have the income.

This is the underlying message in the quote from the great Warren Buffett, the world’s most successful investor, included at the top of this post. He is saying that you should build a capital sum and then invest it in assets that will generate a second income stream for you. For instance, invest in Blue Chip stocks and shares that are paying good and sustainable dividends and that will create a steady income.

Now you’re probably saying, well how do I build a capital sum? Manage your money carefully and pay yourself first when you get paid each month. What does that mean? It mean as soon as you get paid, take say 10% of your salary and put it away somewhere safe. Initially in a saving account. Once it starts to build into a decent sum then start thinking about investing for passive income.

If you like some more ideas on how passive incomes can be created, then the video included here could be useful to you. Think of it as a small step in your financial education.

It might seem almost impossible but it can be done if you work hard and use your money wisely. It will take financial discipline but it can be done.

Recommended Reading:

You will of course need a good financial education, so start by buying a few books on the subject and start reading as much as possible. There are some excellent books on the market and here are some suggestions you might consider adding to your personal reference library:-

Think and Grow Rich by Napoleon Hill

Think and Grow Rich is a classic of the genre. Originally written in the 1930s but still around and still very popular. And it’s still around for a reason. It’s exceptional and definitely worth adding to your personal reference library.

The Richest Man in Babylon by George S. Clason

The Richest Man in Babylon is another classic of the genre. Simple but inspiring. You can read this book in a few hours but it will provide you with a series of powerful lessons for acquiring money, keeping money and making money. Again well worth adding to your personal reference library.

Rich Dad Poor Dad by Robert T. Kiyosaki

Rich Dad Poor Dad is an excellent starting point for anyone seeking to improve their financial knowledge and improve their financial future. This is modern compared to the previous two but it has also become a classic and is well worth the cover price.

I have all of these books in my own personal library and I dip in and out of them frequently. You will be inspired by them all I am sure and I recommend you purchase your own copies now. You can check them out by clicking on the links above.

Other Articles:

Money-Making Tips from the 50 Smartest People

Don’t fall for an easy money scam

How to save money with Amazon Refurbished

Money and How to Get Rich

How to save money

© Roy J Sutton and Mann Island Media Limited 2017. All Rights Reserved.

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