[This article was written by Becca Meyers.]
Whether you feel satisfied with your current job and lifestyle or not, everyone wishes they had a little more time to do what they love without sacrificing income. For this reason, we are talking about residual income. Residual income is money that you make multiple times for working once. It’s also known as passive income. It’s opposite, active income is often called a job.
The Limitations of Active Income
The greatest job in the world is limiting because they only pay you because you work. There are only so many hours in the day, and when you run out of hours, you run out of dollars. Additionally, jobs are fragile. It takes one bad economic event, one scary virus, or one bad decision by your boss to make your job go away.
On the other hand, there is passive income that provides income even when you’re not working. Passive income can come from a lot of sources. For example, if you’re ready to buy a house, you can buy a duplex instead of a single-family home, rent out the other side and let your neighbor pay your mortgage while you keep your regular job. If you live in an area that’s popular with tourists, you can study up on how to make money with Airbnb and rent out the duplex less frequently but for more money.
If you aren’t interested in or ready to own property, you can make residual income in many other ways. For example, you can share your expertise in a blog or on your YouTube channel. Once this is up and running, by creating good quality content, you can expand your expertise and start to make money each time a video is viewed and each time a blog post is read and shared. Adding advertisements to your page or taking sponsors that pay for you to mention their products are an effective way of building income that accrues over time while you only have to do the work once.
There are several ways you can invest your cash to turn it into a bigger pile of cash. However, before you start investing in the stock market, put some serious thought into your risk tolerance. If the idea of putting $100 into stocks and walking away with $50 in the short term sets your teeth on edge, maybe you don’t want to be in the stock market with your after-tax dollars.
If your employer offers a retirement account with a match, you should participate to the maximum. First of all, that’s free money from your employer, and you don’t want to turn down a raise. Secondly, that’s pretax money and can reduce your income tax burden. Finally, you can study the stocks offered, put your dollars into accounts that don’t scare you with their volatility and be a bit freer with the match from your employer. Start your retirement account as early as possible.
Your early steps in building passive income may feel like a part-time job. If you already have a full-time job that you need to pay the bills, this can feel like a lot of work and not a lot of reward in the early stages. There are several steps you can take to make living on your passive income a reality.
- Block out time on the weekends (or your regular days off) to work on building residual income.
- Be diligent about this time. Treat it like a job.
- Reduce expenses where you are now, or consider moving to a smaller place.
- Reduce dollars wasted that give you nothing, such as high-interest debt, late fees, and bounced check fees.
- Surround yourself with people who want to build passive income too.
- Build a great relationship with a local lender.
If you regularly spend time with people who complain about their job, complain about never having any money, and do nothing to improve the situation, it will be really hard to get into an entrepreneurial mindset.
Flexible Work Hours and Environment
It’s important to note that building passive income doesn’t mean working again. It means working on your terms. If you are a part-owner in a group of food franchises, you will need to review the numbers, but you don’t have to make the sandwiches. Even better, you can review the numbers on a plane, a train, or a beach. Passive income is all about flexibility.
Residual income is the key to wealth. Can you save up enough to retire well on an hourly income? Maybe, eventually, but it will take a lot of hours. Breakaway from the time for dollars mindset and turn your passion into residual income.
Becca is a java junkie from the West Coast. She enjoys dancing with her husband and has a knack for finding the next big indie boardgame. You can always find her sitting in her tub eating and trying to figure out how to make money with AirBnB.