Sure, you may know what passive income is. Sure, you may think the idea of not having to work for your money sounds cool. Sure, you may know that having extra money in your pocket each month is great. But do you really understand how freakishly essential passive income is in making your life awesome?
Great question! Glad you asked. Before I go any further, though, I want to be sure you understand what passive income really is. If you need more details on it, check out “The Truth About Active Income vs. Passive Income.”
Okay, back to passive income making your life awesome. Awesome in what ways? Here are 4 mind-blowing benefits of passive income that you may or may not realize are there.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
Benefits of Passive Income
Just when you think you know that passive income is cool, make sure you know about these 4 benefits of having income that you don’t have to work for:
1. Extra Income
This one probably seems obvious. It’s okay; it is the more obvious of them all. But think about it this way — most people think extra income is great, no doubt, but really think about your options if you have extra (free) income.
- What if you like to travel? What if you decide that all of your passive extra income is going to be dedicated solely to your travel fund? That way, you can start traveling guilt-free because you aren’t taking from your normal accounts to support this kind of spending.
- What if you want to pay off debt? Passive income is just that much more money you can toss towards old debts, and you don’t have to worry about taking away from your eating funds to do it!
- Build up your savings accounts. Who doesn’t love doing this, and how many of us wish we could do it faster?
- Fund your liabilities. You know how liabilities are defined as things that drain your pockets and assets as things that put money in your pockets? Well, for most of us, liabilities are way more fun than assets, so why not use free money to fund those liabilities? Talk about being as smart as you can be with your spending! That fancy new car you’ve always dreamed of? Buy it now guilt-free!
- Treat your kids, family members, or loved ones to something special. Again, back to this “not spending money that should be dedicated to serious things” thing. How often do people not take time out of their schedules (and money out of their accounts to do something really special with the people they love? So often! Now you can do it without feeling guilty.
- The list could go on forever…
2. Job Security
I bet you aren’t sure where I’m going with this one. Think about it — if you get laid off or fired from your job, what is your biggest concern? Having money to eat and pay your bills, of course. What if you lose your job, for whatever reason, but you have a decent amount of passive income still coming in (because you can’t get fired from passive income)? It may not be enough to completely fund your life while you are out of work, but it sure could take some of the blow off of how fast your bills may stack up! At least having some passive income will maybe allow you to get your critical bills paid while you get back on your feet.
Another example of comes from a recent conversation I had with a (non-REI) colleague who was telling me that she and her fiancé are currently investing in rental properties. She went on to explain one of their main reasons for buying those rental properties, which was that her fiancé works at a non-profit company where he spends days at a time backpacking through the woods and how more recently he has started saying that he doesn’t think his knees are going to be able to hack the job for much longer. Their thought process is that they want additional income should he have to leave that job, or should he get hurt and not be able to work, or should there be a required time between jobs for him where they would otherwise be suddenly strapped for income.
While passive income may not necessarily guarantee you keeping whatever job you have, it can add some security to any situations that may arise with that job.
3. Retirement Benefits
The obvious benefit of passive income — and why a lot of people invest in real estate — is to add funds to retirement accounts. That is an excellent reason to invest! Extra money in a retirement account certainly never hurt anybody. Here are a couple considerations of more specific reasons why passive income is super-beneficial for your retirement:
- What if you can’t stay at your job as long as you want to or have as much as you want to in your retirement account by the time it’s time to start digging into it? Never hurts to have some extra funds available.
- Specifically for passive income from rental properties: What if inflation has occurred and it has directly (negatively) impacted your retirement funds? Well, guess what? Rental properties are actually a hedge against inflation. So while inflation hurts just about every other retirement account you may have, any retirement income you are making from rental properties has actually gotten higher! Woop woop.
4. Lifestyle Design
My personal favorite! Having passive income is what will ultimately allow you to not even have to work that job we’ve been talking so much about. The ultimate ability for lifestyle design is to create enough passive income so that you don’t have to have a real job (if you don’t want one, at least). Then, once you are free from a job, you can literally have whatever kind of life you want to have.
But what if you don’t want to leave your job, or you are still building your passive income? Well, then go back to the first benefit of passive income, which was extra income. Don’t most, if not all, of the restrictions we have in our lives come from financial ability? Isn’t the reason you don’t do most of what you really want to do because of cost? Of course, there are issues of time and things like that, but expense is such a driver in doing what we want! Possibly the biggest driver. Money is why we work, no? And work is what stops us from doing what we want, no? Well, what if we can skip the work part of that equation?
Extra money, financial security, job security, ability to free yourself, and not having to work for (free) money. Sound good to you? Sounds great to me! It’s the only income I want to have for myself. Why be forced into working and sacrifice what awesomeness lies outside of a work schedule if I don’t have it?
If you want more information on how to get passive income and what you can really do with yourself once you don’t have to work for your money, check out “The Power of Passive Income: How to Free Yourself From Your 9 to 5.”
If passive income is one of your reasons for investing, what are you planning on doing with the extra income?
Let me know with a comment below!