Is the idea of passive income too good to be true? I do understand that talking about passive income is somewhat controversial but I am definitely a believer. Why is there so much controversy around the concept? Because too many it’s an illusion and is not something that is even achievable. So let’s start off by defining it. Wikipedia defines it as follows:
“Passive income is a type of unearned income that is acquired with minimal labor to earn or maintain”
I do like that it does passive income as an illusion that requires no work at all. But to me, generating $1000-2000/month through an investment portfolio is completely different from having a job that generates the same amount of income.
The Actual Mirage
There is no such thing as creating an “overnight passive income”. What is true is that building passive income does require investments, usually of both capital and time. But I do think that too many people actually make a plan and get started. This does not require having millions of dollars or even having a crazy 6 figure job. Almost anyone can get started, even kids.The actual steps are not rocket science.
-Determine how through labor or changes in spending/earning, one can set aside a monthly amount of cash, no matter how big or small
-Have an investment plan that transforms that money into a stream of future income (investing etf’s and dividend stocks is one great way to get started)
-Over time, ideally increase the monthly amount through reinvesting part of any additional cash flow
-Reinvest any income generated by that portfolio
Snowball Effect
Once that process has started it is hard to stop. Every month, you will have more and more income and while the increases will look tiny at first, compounding will do its job and as long as you stick to the process, you will have your own passive income portfolio.