Wealthy people capitalize on money differently. In 2020, when the pandemic wreaked havoc all across the globe, the economy was in chaos and some families can barely put food on the table. Yet, despite this crazy virus pandemonium, 1.7% of Americans managed to climb up the leader boards and become millionaires. At the time of writing, millionaires now make up around 8% of the U.S. population.
But how do these people manage to become a millionaire in the middle of a health dilemma where everyone was suffering? The answer lies in the very question. They earned big bucks because are in the middle of a dilemma. A crisis for some can create an opportunity for someone else.
According to statistics, about 56 million worldwide possess an asset of more than $1 million, and 39.1% of these figures were Americans. In 2000, only 3.8% of Americans were millionaires, and now climbed up to 8.8%, which is 7% higher! These numbers show that 1 out of 10 American adults are millionaires.
More and more people are becoming millionaires, and this is because people are getting a grasp of how passive income works. Without learning how passive income can do the grinding for you, you will never be able to have the time to enjoy life, no matter how rich you are.
There are a lot of myths and misconceptions regarding passive income, and if you don’t fully understand how it works, you might spend a lifetime building one, but it will never make the grade.
Before creating a passive income avenue, here are the important things you need to know:
There is no such thing as a completely passive income
It was always highlighted that passive income doesn’t require a person to work hard for money, but if you look at it closely, you will realize that there is no such thing as a completely work-free passive income avenue. No matter what passive income they may be, they will always require some level of management.
You cannot just invest and forget about it since your money is at stake. For instance, real estate. Although it seems like all you need to do is purchase a property, rent it out, and collect a monthly rental fee, that’s not how real estate passive investment actually works. Managing a real estate property can be a bit time-consuming.
It is not easy to look for a tenant if your property isn’t located in a good area, and good areas are limited in addition to the fact that it’s very expensive. Moreover, taking care of a property isn’t easy, especially if you have a mortgage on it, so it won’t be very easy to oversee it. You have an option to delegate the task to others, but it will cut back on your income.
The same goes for dividend stocks. Even though dividend income is great, the profits you can hope for only range from 2.5 – 3%, which hardly measures up with inflation. You need to get stocks that give 5-7% to go against inflation while keeping some profit for yourself. To achieve such high returns, you need to invest time in studying good companies and overseeing how the market is going.
Forget the idea that you could make an investment and party afterward because such a kind of passive income does not exist.
Real passive income takes a lifetime to build
There are two types of income that can be classified as passive to a certain extent: real estate and the stock market. Everything else aside from these two requires painstaking endeavor to oversee, and perhaps, this is the primary reason why wealthy people tend to put a large portion of their money into these markets.
One to three properties are more consuming to manage than 100 properties. With such a big number, you can launch a small company that will be in charge of them, hugely reducing the cost of managing per property.
Another good source of passive income is index funds (e.g., S&P 500), which grow steadily enough. As experts say, you could just put your money in an index fund, then totally neglect it for years. However, to create such a good income source, you need to invest no less than a million to earn $40,000 to $50,000 annually.
Most wealthy people just inject a huge chunk of money into such a safe investment to earn dividends of hundreds of thousand dollars. But it would take you a lifetime to earn money to be placed in such investment, perhaps 20 to 30 years. However, you might not have enough time to enjoy all the fruits of your labor.
No. We are not telling you not to try doing so, but you should make passive investing the goal of your life.
Don’t allow passive income to become your primary source of income
Passive income streams aren’t always profitable. If your passive income stream is publishing books. You should consider that your books may not sell as they did in the past. If you are in real estate, pandemics can happen anytime, so no one might be able to afford the cost of the rent. Or if the market declines, your stocks might depreciate in value and burn your holding.
Income streams like what was mentioned above can easily be affected by external factors. But there is something that no one else can take away from you — skills. The things that you are good at.
At the end of the day, your assets and money can be taken away from you, but your expertise will remain. It could be in writing, social skills, or medicine.
Come to think of it. If your income depends on Google algorithm, then you are in the clutches of Google, like most content creators are. A single alteration in Google’s algorithm can make your entire business collapse. Long before, some content creators can easily earn hundreds of thousands of dollars. However, those who relied solely on the algorithm now got overtaken by more famous personalities, reducing their profits.
Rather than relying so much on passive income, find the skill you’re good at and master it.
The more difficult things are, the better
People in the cyber world are desperately looking for easy passive income streams. However, passive income should be difficult to build.
Confusing? Here’s why.
If you are thinking of building a website to be your passive income stream because it is easy to make, it won’t last long, and it may not give you substantial returns. Easy businesses lead to a saturated market since just anyone else can follow the hype. Always remember that it is hard to profit in any saturated market. This is why you should strive to advance to a harder passive income source.
Before diving into any source of income, ask yourself whether the competition within that area will be easy or difficult. If it’s easy, don’t give it a shot.
Don’t get yourself scammed by passive income courses
The internet is flooded with online courses on how to build a solid passive income source. These savvy marketers make the course sound so good that all you have to do is to get signed up for the program. But the truth is, the only one making massive passive income is the one selling the course.
The courses are good, of course. You can learn something valuable from them. However, there’s no need for you to pay big bucks just to learn things that you can actually master for free.
