Whenever you read something about the concept of financial independence you will always find that of passive income next door. But what exactly is this passive income ?
It is a concept that Berto Koyosakii introduced in his book Padre Rico, Padre Pobre . Possibly someone said it before but I went to him to whom I saw it for the first time.
Personally, it seems to me one of the most important personal finance concepts . Of those who make a difference and it is really worth knowing what it is and how to take advantage of it for our own benefit.
Therefore in today’s article I will explain what are passive income and ways of generating them.
What is Passive Income?
Passive income is income that does not require any type of active work on your part to earn it, although it may require a great deal of work to put it into operation.
Some examples of passive income are:
- If you have a flat for rent, the money you earn with the rent.
- If you buy shares that pay dividends, the money you earn with dividends.
- If you write a book, the copyright you win.
- If you create a website the money you earn with advertising.
As you can see in many cases they require an important previous job. Writing a book, generating income with a web page is not something you do in a day. The other way is through the purchase of assets, for example a house to rent or some actions to receive the dividend that require a learning job in addition to generating the money necessary for its purchase.
The key is to generate assets such as a book or a web page, or buy them as a home or shares. These assets generate passive income.
To achieve financial independence, you have to accumulate enough monthly passive income to cover the expenses you have for a month. And even if you fail to reach that point, having extra income per month is a great help for your finances.
Great and how do I start?
The most important thing you have to do to start building passive income is to spend less than you earn . If you are spending everything you earn in a month, there is no savings to buy assets that generate passive income.
Always in personal finances, for whatever purpose you have, the first thing is to spend less than you earn. That’s how simple personal finances are. Of course, spending less than you earn is not easy many times.
This means that you have to control your expenses and pay, first of all, your debts with high interest rates since they drain your money at an alarming rate.
Once your personal finances are in good shape it is time to start saving to invest in assets with some profitability .
In most cases, generating passive income requires two types of investments:
- Financial investment
- Time inversion
It depends on the type of asset you will need more than one but another is necessary for both.
To buy an apartment and invest in the stock market you need money but also time to learn and know where to invest. . Also to create a website you need to invest money in the purchase of a domain and hosting but above all you need time. Writing a book, in principle, does not require an investment of money but a lot of time and be calm without worrying about whether or not you will arrive at the end of the month.
When you have an asset that starts working on your own
It is time to start saving for another asset using the passive income that the first one gives you to speed up the process. And so on until you get enough passive income to cover your monthly expenses. Or at least a good part of them.
Undoubtedly, buying assets to generate passive income is something that everyone should do. Not depending on a 100% job to be able to live each month or the pension that the government gives you when you retire seems to me to be an objective important enough to make the necessary efforts and generate passive income.