Passive income, the ability to earn money while doing very little, sounds almost too good to be true. The fact is that passive income is a real thing that can work for people, but it isn’t easy. It requires some hard work up front. These dos and don’ts will give you some ideas about what will help and what you should avoid.
Do Save as Much as You Can
Yes, it’s true that passive income is about generating income, but there are two reasons that you need to save as much as you can while you are still working. One reason is simply because it’s still important to have a substantial cushion if you are planning to quit your job altogether. The other reason is that one way to generate wealth is by investing, and in order to do that, you need cash. Some people who intend to pursue this lifestyle do things such as living on just half of their income and putting away the other half in preparation for leaving full-time employment.
Don’t Withdraw Money
A common mistake is to withdraw that money that should be sitting in investments. This can happen even if you are being responsible because emergencies do happen. For this reason, you should have an emergency fund that can be quickly and easily liquidated. If you have an expense come up and you don’t have the money to cover it, you may want to consider taking out a personal loan. You can check your eligibility and also look at the interest rates you would pay to make sure this is a better solution than taking money you have set aside for investing. If your alternative is pulling money from a 401(k) or a similar account, be sure to consider any tax penalties you might face as well.
Do Launch Multiple Income Streams
You might not be able to do this all at once, but over the long run, you need to be getting income from more than one place. You might have some money in stocks and mutual funds, and you might also own a house that you rent out. In addition, you may have written several eBooks that you sell online, and you might do affiliate marketing from your website. It is also important to track what you are making from each stream and make adjustments if necessary.
Don’t Expect to Get Rich Overnight
You might not get rich ever, but you can earn enough money to live off of if that is your eventual goal. However, this won’t happen overnight or even over a year. You will need time to build up cash flow from each of your different projects. It’s not a bad idea to approach this as you would any other business and create a business plan that projects where your profits will come from, how you expect to grow over time, how you will market yourself and any other questions that you think of that will need addressing in order to be a success.
