Entrepreneur's Perspective: The Truth About PASSIVE INCOME
Income can be defined as money received, especially on a regular basis, for work or through investments. Income is defined in different ways depending on the context-- for example, for purpose of taxation, financial accounting, or economic analysis. Individuals generally focus on both their levels of disposable income(that is, their total income minus taxes) and their discretionary income(that is, the amount, if any, left after payment of taxes and expenditures for necessities such as food, clothing, and shelter). For individuals and businesses, income generally means the value or amount that they receive for their labor and products. Income is difficult to define conceptually and the definition may be different across fields. An extremely important definition of income is:
"As Consumption + Change in net worth and is widely used in economics"
There are three main categories of income: active income, passive income, and portfolio income. Today we'll be looking at what passive income means to an entrepreneur.
Table of Contents
What is Passive Income?
Passive income is money you earn that doesn't require you to do a lot of "active" work to continue making it. Passive income includes regular earnings from a source other than an employer or contractor. The Internal Revenue Service (IRS) says passive income can come from two sources: rental property or a business in which one does not actively participate, such as real estate or stocks.
The Passive income misconception
"Many people think that passive income is about getting something for nothing,"Todd Tresidder says:
"It has a 'get-rich-quick' appeal... but in the end, it still involves work. You just the work upfront."
In practice, you may do some or all of the work upfront, but passive income often involves some additional labor along the way, too. You may have your product updated or your rental property well-maintained to keep the passive dollar flowing. But if you're committed to the strategy, it can be a great way to generate income and you'll create some extra financial security for yourself along the way.
Active income vs Passive income
Let's say you're given two options, the first is to earn Active income: working to get paid, exchange time for money. The second option was to generate passive income, earning money while you don't have to be present, 8 or 9 out of 10 would go for the second option however this is not so simple in real life.
The reality about Passive income
There is no direct road to passive income, unless you were born in a very wealthy family, you will first have to earn money in order to put that money to work to generate passive income. This is called the "Active road to passive income," going from active to passive. There are two ways to do this:
- Work and invest
- Build and harvest
How to build passive income (passive income streams)
Work and invest:
Here you go all out on maximizing your active income first, choose a job, or start a business where you get paid well for doing what you love or doing what you can, work as hard as you can. Track the income you generate as well as your expenses, only if your income exceeds your expenses do you generate the capacity to invest. Invest in real estate or stocks and start generating rental income or compound interest.
Build and harvest:
This is similar to the first, but it does take a lot of hard work upfront From these building activities you may be able to generate a steady and ever-growing income stream, you harvest earnings for work that you have done upfront.
Note: Each investment categories have risk associated with it, you might have mortgages of your own to pay or you may not be able to rent the home out for as much as you could before as incomes decline, and share prices might fluctuate especially during times of uncertainty. Economic stress can also cause some companies to cut their dividends entirely.
Conclusion
Let us ponder the question "does passive income really exist ?" in my opinion, I would say yes and no. Having said that anything that starts with I don't want to work is already a problem, if you think there is a special way to just have money flood into your bank account while you sit on a beach and do nothing, you're very mistaken. Nobody you know that is making passive income didn't grind for years and years before they were making enough "passive income" to live comfortably. Comment what you guys think on passive income.
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