Wealth Mgmnt

Passive Income – It Takes Money to Make Money

I’m just going to come right out and say it: It takes money to make money. There are several other proverbs that could be used here as well, like, “If it’s too good to be true, it probably is,” and, “If it’s free, there has to be a catch.”

Okay, you get my drift. Passive income is one such encounter. I don’t know about you, but I don’t know a lot of people who sit on the beach all day and make money taking a nap under a palm tree. If you search the web for passive income, you will find list after list of 37 or 26 or 173 ways to make money and not work. As a small business person, you find this intriguing, and want to know more. Sure, you would love to go to bed at night and have that online ecommerce cash register ringing until you awake in the morning. Stick to your business plan and do what you know how to do best, and if extra income comes your way in various forms, all the better.

Passive Income is a real concept, as marketed to those with wealth. The idea is not how much you earn in salary, but how much your passive income streams cover your expenses. Income gained through rental property is one example. Putting a large amount of money in the bank and garnering interest off of it is another. The methods are endless, but the common dominator is money. If you don’t have cash, you can’t buy that house to rent, or have the money to put in the bank to draw interest.

Let’s dispel a couple of the common myths about the allures of making money for doing nothing.

·         Build it and they will come:  We can use a blog for an example, and we won’t even mention the time, expense, or expertise needed in advance of getting this blog up and running. You have your blog site with an incredible niche, but in order to gain from this blog, you need to continually add value through content, etc. in order to keep viewers coming to your site. This form of passive income is continually working, hence, non-passive!

·         Only Takes a Day to Start:  That blog that we just mentioned hinted at upfront work for passive income. We all know the ingredients to the success, and while you may push a button and start the blog in a day, you realize that it is often a career in the making to get to this point.

·         One Passive Income Source is all you need:  There are cases where this is true, like rental property in the real estate market, but again, upfront money is needed. As with diversifying a portfolio in the capital markets, most business owners who have other incomes will tell you it is from multiple income streams. The whole idea obviously is to cover yourself, as passive income from various sources ebbs and flows into your account. Again, getting to multiple income streams is incredibly time consuming, and can take away time you should be using to grow your primary business.

Passive income in its truest sense is really no different now than it has ever been. Saving your money and investing it prudently and using the power of compounding to grow small amounts into large. One example of the time value of money is a great lesson for you as a parent or a millennial just getting started. The best thing to do, is to start saving money as soon as possible. The younger you are, the more money you will have. Take a look:

Invest $2000 a year for nine years and start at the age of 21. On a 10% interest rate, the initial $18,000 you invested will be worth $763,000 by the time you reach the age of 65.

If you have a friend who waits until he/she is 30 to start saving and they save $2,000 a year every year until they are 65 which is a total of $70,000, they will only have $542,048.73, a difference of $220,000 from the person who started at the age of 21. Time is definitely on your side, so start early! Imagine what it would be if you started saving even earlier than 21!


Wealth Mgmnt