Passive income, or money generated from an initial project that doesn’t require additional hours of work, offers many benefits. The many benefits is just one of the reasons why passive income has become the craze of the internet. It is being discussed more and more these days. The increase in technology and popularity of the internet has no doubt increased the options available to individuals and the ability to earn income. But for what benefit? How does passive income help you?
Benefit of Passive Income
• Extra income – This is probably the most obvious benefit because who doesn’t like having an extra bit of cash every month? You can use it to pay off your liabilities, build up your savings, and the list can go on. Or you can spend it guilt-free on anything you want because you’re not taking money from your income through work.
• Security – Think about your biggest concern when you get laid off. For most it will certainly be money to eat and pay off bills. So if you lose your job for whatever reason, wouldn’t it be nice to have some decent money coming through every month while you ride through the tough times?
• A hedge against inflation – This is specifically for passive income derived from rental properties. It is a very obvious benefit because, if you’re a landlord, you’ll naturally have to increase your monthly rental every other year to keep up with the pace of inflation.
• Improves your ability to get a loan – Most banks see passive income from property rentals as a proper source of income as long as your tenancy agreement is officially stamped and backed by a bank statement. Thus when the banks are assessing you for a loan, passive income will improve your debt service ratio and get you better terms.
• Lifestyle – This is the ultimate benefit and end goal in life: to be financially free so that you can design a life exactly the way you want it! If you don’t care about lifestyle, you can just stay at your current job and work the required fixed hours. The lifestyle benefit is why I have positioned myself to work on building up Property Pinpoint and my real estate portfolio – the income from these two will continue to be invested into more real estate and build up more wealth.
• Freedom of Life – Passive income gives a lot of freedom. It will, hopefully, provide enough money to sustain the current lifestyle while giving the free time to do what you really want to do. Most importantly, it will give you a peace of mind.
On a final note, I just want to point out that there isn’t such a thing as true passive income. I have put in a lot of work, sacrifices and risks in the beginning of my real estate journey and I’m just starting to see some of money coming in. Moreover, I know that I cannot completely remove myself from my investments if I want to continue receiving all of the above benefits.