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Why You Should Be Developing A Passive Income Stream

By Mark Riddix

Are you hoping to make enough money from your current job so that you can retire? If so, then you may need to rethink your plan. Things have changed from the days of your parents and grandparents. In the old days, you could work for the same company for 30 to 40 years and you could retire with a nice pension plan. This is no longer the case today due to fewer workplace benefits and lower wages. While your earned income may be enough to pay your bills, it may not be enough to finance your retirement. The solution may be found in creating more passive income.

So, what is passive income anyway? Passive income is any income that you receive from any activity that you are not actively working for. You don’t have to be actively involved in a business venture to collect passive income. Passive income can come in many different forms including rental properties, dividend income, partnerships, and royalties. Think of passive income as a residual income stream that just keeps flowing. This differs from active income which is income that you have worked for. Your salary, commission, and bonus are all active income that you receive due to services or labor that you perform.

Our society does not place a heavy enough emphasis on making passive income. We are taught to work for 40 to 50 years and then attempt to retire off of our active income. This may work for a few people but the majority of the population will not be able to retire on active income alone. Wage growth has been stagnant for the past decade and employers are paying less than ever. The way to financial freedom is to create a passive income stream. Generating passive income means letting your money work for you. Passive income does not require you to be directly involved in earning it. This frees you up to accomplish other tasks while your money continues to grow.

The key to accruing wealth is by building multiple streams of passive income. The goal is to have a consistent cash flow coming in from several different sources. The problem with active income is that there are limits to it. There are only 24 hours in a day and you can only work so many of those 24 hours. You are not earning any active income when you are not at work. Active income will stop if you become fired, laid off, ill, or unable to perform your job duties. There is only a finite life to earning active income. Passive income, however, can keep flowing for the rest of your life. Passive income can also help you maintain your emergency fund.

Even if your passive income stream doesn’t end up making you rich, it can help with car payments, build the kid’s college fund, or help you catch up on some bills. In these turbulent economic times, every bit of money helps. Next, we will take a look at five strategies for earning passive income.

What are some of the ways that you are earning passive income?

(Photo credit: Photos8.com)

Mark Riddix
Mark Riddix is the founder and president of an independent investment advisory firm that provides personalized investing and asset management consulting. Mark has written financial columns for Baltimore and Washington, D.C. area newspapers and is the author of the book, Your Financial Playbook.

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  • http://www.biblemoneymatters.com Peter

    Over the past couple of years I’ve built up my secondary incomes via my blogs to the point where they meet or exceed my day job income. While it’s not truly passive income that I’m making in that I have to write blog posts 5-6 days a week, it is a secondary income stream that helps me to diversify my income streams and help to hedge my bets against losing any one stream of income. Gotta love the increased security that comes with having alternative income coming into the house!

    • Mark Riddix

      Peter,

      Congratulations! You are living the dream right there! You are producing multiple income streams and your secondary income has surpassed your day to day income.

  • http://www.debt-tips.com/blog Kris

    My passive income also comes from a few websites but not yet enough to replace my “day job”. In this day and age, it certainly is a good idea to have a plan to survive financially in case of job loss. Many people say “oh that’s nice that you make money without working” but as Peter said, it’s not money without work. The hard part about self employment is that an hour of work doesn’t always equate to $x, but in the long run, it pays off!

    • Mark Riddix

      True Kris. You may work on your websites day after day and not see the benefits over the short term. As long as you are persistent it will pay off!

  • http://www.TopTradingSutra.com Daniel

    Hey Mark,

    Great to come across your blog. Well my passive income comes for some of my websites and products. For example, one of my automated trading product gives me around 5% returns of my investment per month. Although it’s not a lot, but it’s still a source of passive income.

    There are seriously many ways to generate passive income, but the first thing to do is to take action to implement :)

    So what are some of your huge passive income sources coming from?

    Dan

    • Mark Riddix

      Hi Daniel,

      I generate passive income from my blog that I write. Advertisers pay to advertise on my site. I also generate income from a book that I published. Dividend income is the last component. I buy bonds and dividend paying stocks for the income component.

      • http://www.TopTradingSutra.com Daniel

        Hey Mark,

        Great! Your blog do have very useful information and seems like we’ve got some common interest. Anyway, nice to know you and hope we can exchange more pointers on passive income :)

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