I read that the key to wealth is the ability to turn earned income or money you work for into passive income, incremental money you receive each month or on some recurring basis that you dont work for. Though that sounds great in theory how does it work in practice? I know rental income is a form of passive income. Can anyone think of other ways to make money that is not tied to your labor?
ALI
Comments
There’s lots of ways. Interest income is passive. Stock gains and dividends are passive. Bond interest is passive. Investing in a private business could be as well.
Major note: Avoid debt. So many people think it’s a great idea to have 10K in the bank earning 2% while they owe $5K on credit cards at 22%.
Sounds like you’re fairly young. Max out any 401K match from your employer, then start looking at other investments. No-load mutual funds and index funds are a good place to get started.
Instead of talking theory, I will explain exactly how you can do this. Open a Roth IRA account. Deposit $4000 a year into the account. Invest the deposited money into a diversified portfolio of equity investments. Historically equity investments have returned about 10% annually and some much more 14%. Assuming 10% average annual return in 35 years your account will contain over $1,000,000 and it will be earning a passive income of $100,000 on average annually.
Now here is the best part. Because it is in a Roth IRA account all that money will be tax free. WOW.
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The stock market is about the best way to do it, as rental properties can be a hassle. Would you like renters to be calling you at all times to fix the plumbing?
Jeff
