Have you ever thought; What would happen if I could no longer want or could show up to work?
In short, if you do not have disability insurance, a trust fund or a wealthy spouse you are in for financial ruin.
If you are serious about living a financially healthy life, you have to find a way of creating passive income. What is passive income? Passive income is money you make without having to actively work. For all we know you could be in Hawaii drinking a margarita while you make money. Sure sounds attractive, right? All millionaires have something in common, they created multiple ways of making money. Lets explore some of the most common ways of creating passive income.
1- Cash back credit cards - We all have monthly bills to pay for, they will never go away. Bills like electricity, water, car payment, groceries, insurances etc. How are you paying for them, are you just simply deducting them from your bank account every month? This is not wrong, but what if you can earn some cash while doing it? Pay all of the bills with a cash back credit card without annual fees, at the end of the month collect the cash back from the credit card company.
Pros - Concentrate all of the bills on a cash back/points credit card, earning points which you can then turn into cash, hotel points or airline points to travel. Low risk if you pay monthly the entire balance.
Cons - You have to be diligent every month in paying the due balance or else you could end up in serious debt.
You also have to be mindful of what you can and cannot buy. Some forget you have to pay for it at the end of the month and get easily in debt.
2- Dividend paying Stocks - Dividend paying stocks are a great way of creating passive income. These are stocks that pay you every certain period of time (usually every 3 months) just for owning them. Take for example Pfizer (PFE) it has a div/yield of 3.18%, meaning it pays $0.39 for every stock you own every 3 months. Better yet Phillips 66 (PSX) has a div/yield of 4.9% meaning it pays off $0.90 every 3 months.
Pros - You get paid every 3 months. High risk- should the price of the stock drop the value may go down. However the dividends generally speaking do not change.
Cons - You need a substantial amount of money to be able to live off this. Stock price is variable, should you sell when value has decreased you can lose money. But since you follow the TheFinancialMD closely you now you do NOT sell.
3- Create a course/write a book/blog - Overall a great way to make a living, almost no money to start with, however requires time and creativity.
Pros - Little money to start. Low risk.
Cons - Need to work consistently in order to grow. Creativity/knowledge is instrumental.
4- Rental properties - Great way of making passive income. Many fortunes have been made this way. It requires know how about buying and rehabbing properties. After you bought then rehabbed the property, you will have to manage it or outsource the management to a management company. All this is time intensive and requires some level of knowledge. There are 2 ways to make money, either with monthly rents - cash flow (money left over after bills are paid) or the value the property going up - appreciation.
This type of passive income requires cash to begin with.
Pros - Potential to make a steady income and build significant wealth.
Cons - Time consuming. Risk is high if using too much leverage (mortgages).
5- Bonds - This is the opposite of stocks. Bonds is money you lent and are collecting the interest.
There are many different type of bonds, picking individual bonds is best left to the experts. I need simple stuff that I can understand. I always try to keep it as simple as possible. What if you could buy a piece of all the bonds in the market? There is a way, you could buy Total bond index fund VBTLX, by owning this you will own a small portion of all the bonds in the USA. It pays out a dividend yield of 2% per year.
Pros - Monthly payout. Steady income.
Cons - Requires Cash to begin with. Price will fluctuate according to interest rates.
Of course starting a business is another way, but that's what universities are for? Right?
Start thinking about creating ways to make money outside of your paycheck. Possibilities are endless in this era.
Creating multiple income streams is the way to Financial independence.
Till next time,
JL
Disclaimer - This blog is meant purely for educational discussion of finances. It contains only general information about financial matters. It is not financial advice, should not be treated as such. The contents of this blog are not medical advice, for medical advice please talk to your medical provider.