Why Investing is a Great Way to Earn Passive Income

The last few years have been a challenge for many people. A global pandemic swept the nation, and many found themselves living on unemployment, waiting for the world to open up again. More than ever, people switched jobs to find careers that brought them greater satisfaction and offered more freedom.

Still, even with covid bringing everything to a standstill, everything seems only to be getting more expensive: gas prices continued to surge all summer, the cost of medical care seems absurdly high, and housing prices are rising. You may desire more freedom, but the cost of living makes that feel almost impossible.

Even on a budget, investing can be a fantastic way to earn passive income and start your journey to financial freedom. Start small, and as your nest egg grows, you can invest higher amounts and yield even higher returns. Find what investment option works best for you, whether that be stocks, bonds, rental property investment, or peer-to-peer lending.

Investing isn’t a Side Hustle

Side hustles have become more common in the last few years as people try to find ways to keep up with inflation. The harsh truth about side hustles: they are a lot of work. While you could start a side hustle with little to no financial investment, it will require a significant investment of your time. Many take years to see any profit.

Sure, you see the success stories where someone leaves their 9-5 forever and makes their side hustle their full-time job, but this is the exception rather than the rule if you have a passion for something and the drive to build your own business or blog, than a side hustle may be for you.

When you work multiple jobs, it can be so much easier to reach your breaking point. If you have to work multiple jobs or have a side hustle to get by, you could quickly find yourself experiencing burnout. What if you want to build wealth without sacrificing time and energy?

What Does Passive Mean?

Unlike a side hustle or a traditional job, passive income allows you to generate wealth without investing your time and energy. You’ll earn income without having to punch a clock. It may take a little effort to do your due diligence, research your options, and decide where to invest, but once you’ve made your choice, you’ll see an income stream from the investment.

Passive income can help you meet your financial goals without putting in as much effort as working a second job. Developing an investment portfolio could help you save to buy a home, open up your schedule so you can work less and travel more, or help fund your retirement.

Some examples of passive income include:

• Real Estate Investment – purchasing either a single-family home or complex to rent to tenants
• Rental Property Investment – buying a property to rent out as a vacation rental
• Fractional Ownership – lessens the burden of purchasing a high-dollar asset, like a vacation home, by splitting the cost between multiple owners who share the profits and losses of the investment.
• Stocks – purchase shares of individual corporations and earn dividends based on the company’s performance.
• Bonds – invest in a private company or government project with a bond and be paid back in full with interest over a specific time frame.
• Peer-to-Peer Lending – also known as private money lenders, lend your money to a person or a business and earn money from interest payments.

Deal with Debt and Start Saving First

The desire is for passive income to help you reach financial freedom, which requires you to look at the entire picture of your finances. Before investing, work towards building savings and finding a way out of debt.

Getting your debt under control will help you build a better financial future. High-interest credit cards usually carry a 20% interest rate, and student loans can have rates of 10% or higher. Those rates are higher than the average 9.2% return rate of the US stock market. You may save more money paying off debt and avoiding interest fees than investing the same amount in the stock market.

You also don’t want to dump all your savings into investments. Make sure you still have an emergency fund handy. Financial advisors usually recommend having at least three months of savings for living expenses.

Eventually, you may be able to use your investment income to pay down your debt and build your savings, but make sure you have a plan in place.

Get Started with Investing Even on a Budget

If you don’t yet have thousands of dollars to invest in the market or real estate, there are still ways you can begin to build an investment portfolio and create passive income.

• Contribute to your 401K – It’s never too early to start planning for retirement. Many companies will match your contribution, which means more money for you. You also contribute to these accounts’ pre-taxes, and earnings continue to accumulate tax-free.
• Take advantage of your tax refund – use the extra cash you get in the spring to begin an investment portfolio. A few hundred dollars may not be enough to buy a rental property, but you could certainly invest in the market or consider fractional ownership of vacation property.