Active income is what you work for, but passive income is what you work for. If you don’t figure out how to make money while sleeping, there may come a time when you can’t sleep because of money. Invest your active income in passive income so that your active income is replaced. Invest in assets that will eventually replace your liabilities. Your passive income will initially cover your phone bill, then your car payment, then your mortgage, and finally your salary. Financial independence is defined as having enough passive income to cover your living expenses. Financial independence leads to time independence. Create financial freedom to appreciate the passage of time.
You can create passive income through:
- REITs
- Business Income
- Dividend Stocks Income
- Covered Call Options Income
REITs:
A REIT (Real Estate Investment Trust) allows you to invest in real estate without actually owning any property. REITs allow you to invest in real estate without having to be a landlord. Real estate investors provide the capital for an investment and delegate management of the REIT to professionals. Dividends are a form of passive income for REIT investors. When you invest in a REIT, you are essentially buying stock in a company that owns real estate.
When you invest in a REIT, you don’t own the property; instead, you own shares in the company that does. REITs frequently invest in multiple investment properties, providing the REIT with a diverse real estate investment portfolio while reducing risks.
REITs are an excellent way to gain exposure to high-yield dividends as well as the Real Estate sector. Since 1980, REITs have delivered an average return of 11%. There are three ways to invest in REITs:
(1) Purchase a REIT Index Fund/ETF (2) Purchase individual publicly traded REITs on the stock market (3) Invest in private REITs with others
REITs exist in every industry, including malls, retail, storage, casinos, industrial, healthcare, cell towers, apartments, and data centres.
Business Income
If you can work 40+ hours per week for someone else, you should be able to work at least one hour per day for yourself. Create multiple income streams from a side business or side hustle so that working 40+ hours a week becomes a choice rather than an obligation. To maximize your income, always use strategic tax planning. You can deduct everyday expenses as a business owner if they are used for business purposes. Rent, Wi-Fi, electricity, cell phone bill, business meals, vehicle expenses, and home office deductions are a few examples.
Replace your 9-5 with the 5-9. If you can work for someone else for 8+ hours a day, you can use your evenings to work on a side hustle, or side business, or learn new skills that you can be paid for. Many income-generating hobbies or skills that people know or can learn have been replaced by hours of scrolling through social media. Time is your most valuable asset; lost time cannot be recovered. Make extra money with a side hustle or a side business and retire early.
Dividend Stocks Income
Dividends are payments made by a company to its stockholders to share profits. The dividend yield is expressed as a percentage of the dividend per share/stock price. My favourite dividend index fund is $SCHD.
$SCHD is my preferred dividend index fund because it only invests in dividend stocks that have: • paid investors every year for at least ten years • have significant daily trading volume • have the best relative financial strength
Dividend Tax Planning Strategy:
In retirement, a 4% dividend on a $1,000,000 investment account can be worth $40,000 tax-free ($80,000 if married). If your income is less than $40,000 ($80,000 if married), you pay no tax on long-term capital gains.
Covered Call Options Income
Trading options is how you make money when the markets are trading sideways or falling. There are numerous opportunities to profit from options, but you must also be aware of the risks! Options can make you a lot of money if used correctly, but they can also be extremely dangerous if used incorrectly. Call-and-put options offer a variety of strategies for hedging, income, and speculation. Options may appear overwhelming at first, but they become simple once you understand the fundamentals.
