Ways to Get Started Building Passive Income
By learning how to build passive income, you open up a world of possibilities – a life full of choice, freedom and independence where you live a life beyond your wildest dreams.
Passive income is a regular flow of money that doesn’t require a significant commitment of time, money or energy to earn. In other words, it doesn’t require you to do much ‘active’ work. You can read about Passive Income, Why it Works and How to Use it to your advantage here.
Now let’s talk about ways to get started building passive income.
1. Identify your short, medium and long term goals
The first step is to identify your short, medium and long term goals. Get crystal clear on your vision, how you want to live your life, where do you want to live, what you would like to experience, what type of support you’d like to have, how do you want to spend your time?
2. Ensure your financial foundations are in place
Before you embark on your journey of building assets to create passive income, it’s imperative you have your financial foundations in place. It’s like building a house without a solid foundation, it might be okay to start with but at some point it’s going to come crashing down. Ensure you have a good understanding of the money you have flowing in and out and how long you can sustain your lifestyle if your income stopped. My Free Money Management Guide goes through this in more detail.
3. What is your investing time horizon?
When do you need access to these funds? Generally speaking, for assets that create passive income you will need a time horizon of 7-10 + years. It’s important to ensure you don’t invest funds you’ll need to access in the short or medium term as it may not be an appropriate time to sell the assets and also defeats the purpose of investing to create passive income.
4. How comfortable are you with the risks?
There is a chance the investments actual gains or losses will be different from what you expected. Whilst having a long term time horizon means you will have more time to ride out fluctuations , it’s important to consider how comfortable you are with seeing the value of your assets decrease. It’s about understanding your ability to manage your emotions during these times.
5. Research different income producing assets
It’s now time to look at different income producing assets such as cash and fixed interest, domestic and global shares across different geographical locations and sectors, exchange traded funds, managed funds, brokerage platforms, fees, different property markets and to research sites such as Airbnb, Stayz, Car Next Door and Go Get to rent out space or cars.
6. Understand diversification
Diversification can be described as not putting all your eggs in one basket by having exposure to different asset classes across different geographical locations. One of the easiest ways to create diversification in your portfolio is through investing in Exchange Traded Funds.
Diversification involves having an allocation across defensive assets such as cash, bonds and fixed interest and growth assets such as equities (also referred to as shares or stocks), property, and infrastructure. The proportion allocated to defensive and growth assets and then the underlying asset classes will depend on your appetite for risk, how you feel about volatility and your time horizon..
Passive income is what is going to enable you to create financial freedom!
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This is general information and for educational purposes only.
