The Power of Passive Income

We’ve talked before about what separates the wealthy folks from the regular folks. And while a lot of it has to do with mindset, attitude, and approach, when you get right down to it, the most important difference is that the wealthy understand the single most important key to financial success and independence: Passive Income.

To recap from previous articles, Passive Income is money you get from assets you have purchased or created, without necessarily requiring your ongoing time and effort. For example, if you were to buy a house and rent it out for more money than it costs you to pay your mortgage and other expenses, the amount of time/effort required by you is relatively small (especially if you’re willing to give up some of your income to pay a professional management company).

The key to Passive Income is that the assets are generating the income, and not you.

While the distinction may seem small, the key is that the asset generates the income regardless of how much time or effort you contribute. Using the rental house example above, the asset (the house) is generating a monthly income for you, *without* you having to continually put in time and effort to generate the income. Unlike a job or an hourly consulting gig – where you must put in the hours to get paid, and the amount you get paid is directly proportional to the hours you put in – Passive Income is created regardless of the number of hours you put in.

Imagine owning a number of houses, each generating Passive Income, and the total monthly Passive Income equally or exceeding your monthly salary. With this Passive Income, you could essentially retire, and continue to receive the same income you previously received. Additionally, the time that you have created for yourself can be used to create additional Passive Income (perhaps buying more houses or creating other assets).

As you can see, Passive Income frees up your time to either retire or to pursue other money making efforts. The wealthy recognize this, and use Passive Income to generate – and then continue to grow – their wealth.

As another example of Passive Income, consider owning a business that could operate independently of your working for it. For example, a web-based business, a convenience store, a restaurant, or any of a million businesses that could be started, and then handed over to a management team to be run. With a capable management team, a good lawyer, CPA and business manager, the amount time you were required to be involved in the business would be negligible, and yet you would continue to make recurring income – Passive Income – from the business.

And while team of people are running your business and making you money, you can spend your time creating other assets that generate more Passive Income.

This the key to making money that the wealthy understand that most others do not…now you do as well.