Passive income is the best kind of income to receive. With passive income, you have set up a cash flow that generates income without you having to work for your money. Initially, there is some amount of effort required to set up the “stream” of income. If you don’t want to work every day, it’s crucial to set up several forms of passive income to build your wealth.
Linear income is the type of income you receive when you go to a job, work and then get paid on payday. The effort you put in is directly related to the pay you earn. Unfortunately, if you cannot work anymore or don’t want to work anymore, your income will cease.
Here are three of the best kinds of passive income strategies you can set up now and be paid for many years down the road.
Passive Income Strategy #1 – Real Estate
How often do you hear about people getting wealthy from real estate? Or how many books have you read on how to buy investment properties? Real estate is a proven path to wealth.
With real estate, the safest strategy is to buy and hold. Mike Summey, the author of The Weekend’s Millionaire’s Secrets to Investing in Real Estate, advises the novice real estate investor to start out purchasing only single family homes in a 10 mile radius of where you live. This way, you will be able to familiarize yourself with the neighborhoods in which you will be buying properties.
As long as your cash flow is positive, even if it by only $50 per month, after you collect rent from your tenants and pay the mortgage, taxes, property manager and repairs, you will be on your way to investing in more properties.
Mike Summey states that because each year, you can raise the rent by a certain percentage and your mortgage principal will be lowered, your positive cash flow will increase every year until the loan is paid off. At that point, you will get to keep almost all of the cash flow from the properties.
Passive Income Strategy #2 – Royalties
Another type of passive income is earned from royalties. If you are a songwriter, author or actor, it’s possible to be paid royalties on your work when someone plays your song, buys your book or when your show is syndicated on television.
Another way to earn royalties if you are not a songwriter, author or actor is to write articles for websites like Associated Content or Triond. Associated Content pays you both up front for writing an article and per page view when someone clicks on your articles.
Triond does not pay upfront for articles but they do share one half of the residual income they receive when someone clicks on an ad shown on the same webpage as your article. Triond and Associated Content pay monthly royalties.
Passive Income Strategy #3 – Dividend Reinvestment Program
Dividend Reinvestment Programs, otherwise known as “DRIPS”, are offered by certain companies to shareholders as a way to be able to buy stock directly from the company, instead of using a broker. You can buy stocks in small amount in this type of program.
According to Motley Fool (fool.com), the plans also reinvest all or part of the quarterly dividends back into the company’s stock. This is an easy way to set up passive income because you can set up automatic deposit in to the company’s stock account and then set it up to automatically reinvest the dividends.
If you invest in 3 different stocks that have a staggered quarterly dividend payout, it’s possible to be paid dividends each month of the year. For example, General Electric pays dividends in January, April, July and October. Clorox pays out in February, May, August and November. 3M pays out in March, June, September and December.
If you have built up your volume of stock and are paid a substantial amount of quarterly dividend, instead of reinvesting the dividends, you can opt to be paid by check and use this as your passive income. A good resource to find out more about DRIPS is the website www.dripcentral.com.
As you can see, there are many ways to build up your passive income so that you can avoid working for linear income. I have only touched the surface of this fascinating subject.
