The Art of Passive Income
Imagine this – you’re tucked into bed, deep in a dream, and while you’re sleeping, your bank balance is growing. Sounds like a dream, doesn’t it? Well, it isn’t. It’s possible and it’s called earning “passive income”.
One of the critical steps towards becoming wealthy is discovering ways to earn money without actively working for it every moment of the day. You might be asking, “But how can I do this?” Here’s how – it could be by investing in stocks, bonds, real estate, and cash-flowing assets, or even kick-starting a business.
Let’s break this down a bit further so you can get a better understanding.
Say you decide to invest in stocks. What does this mean? Well, when you invest in stocks, you’re essentially buying a tiny slice of ownership in a company. Think of it as becoming a mini co-owner of a company like Apple or Nike.
Now, as this company grows and starts making more money, those profits can be put back into the business to fuel further growth or can be divided amongst the shareholders (that’s you!) in the form of dividends. Earning money through dividends or from the increase in the price of the stock (known as capital appreciation) is a way to earn passive income.
Here’s a little example to illustrate this. Imagine you bought 10 shares of a company, let’s call it “DreamCo”, at $100 each. So, you’ve invested $1000 in total. Now, DreamCo has had a fantastic year and decides to pay $5 per share as dividends. That’s $5 for each of the 10 shares you own, so you’ll receive $50 just for owning the stock.
Plus, let’s say the price of the stock also increases to $120 per share. If you decide to sell your shares at this new price, you would get $1200 in return for your original $1000 investment. So, through dividends and capital appreciation, you’ve made a profit without having to do any active work.
But how do you choose where to invest?
The trick to making money while you’re snoozing is to research and invest in companies with strong growth potential and a history of giving back to their shareholders. For example, tech companies like Apple and Microsoft have shown consistent growth over the years and have regularly paid dividends to their shareholders. By investing in such companies, you can earn money through dividends and capital appreciation, even when you’re asleep or busy doing something else.
But stocks are not the only option. Other types of investments can also generate passive income. For instance, you could invest in bonds, which are essentially loans that you give to a company or the government. In return, they promise to pay you a fixed interest over a specific period.
Real estate is another popular option for generating passive income. You could buy a property and rent it out, earning a steady income from the rent payments. Alternatively, you could invest in a Real Estate Investment Trust (REIT), which is like a mutual fund for real estate. REITs invest in a variety of real estate assets, and you can earn income from the profits they generate.