How Millionaires Build Passive Income
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Have you ever wondered how many sources of income a millionaire has? Well, I did some research and can tell you that an average millionaire has at least 7 sources of income. You might think it's not easy to set up another stream of income. But, it's not that tough. Read more to know what passive income is and 5 common sources of additional income.
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Do you think Mukesh Ambani, one of the richest men in the world, makes his millions only from Reliance Industries? Of course not, he has at least 10 other companies working for him and other streams of passive income that add up to his net worth. People often say that the rich get even richer. That's because the rich have the money to invest and build passive income, creating an impressive portfolio.
You may ask what exactly is passive income?
All income can be classified as either passive or active. Passive income is income you earn regularly without putting much effort into it. On the other hand, active income is income you work for - your primary job, a second job, a paying hobby, or the profits you make from active investing.
Passive income is not hard to build. It may require some time and effort but not as much as your primary/mainstream income - The gains may seem small at first but can grow to contribute significantly to your net worth.
Here are 5 common sources of passive income
#1 Interest and dividends
Interest and Dividends are one of the most common and simplest ways to generate passive income.
Interest is the price you pay to borrow money or the cost you charge to lend money. The two basic ways of earning interest are interest-bearing bank deposits or loans given out. Interestbearing deposits are worried less and a safer choice. Loans, on the other hand, are a riskier choice but often generate better rates of interest.
A dividend is a cash or stock reward earned through your investment in the equity of a profitable business. It usually originates from the business's net profits. It can be understood as the reward for a good and successful investment.
#2 Capital gains
A capital gain is the increase in an asset's value and is realized when the asset is sold. Capital gains can apply to any type of asset, including investments. The gain may be short-term (one year or less) or long-term (more than one year).
So, if you invest regularly, your portfolio grows to be healthier, larger, and more profitable. When you sell these investments you could earn a lump sum amount that is known as capital gains.
Although it’s important to note that there might be capital losses too, one should always invest keeping in mind their risk capacity. So be safe, do your due diligence before investing, or get a professional portfolio manager.
#3 Royalties
When people borrow or utilize your intellectual property, they generate royalty revenue. It might be something you bought or something you made yourself.
For example, you’re a music producer and you have just launched an album. You will earn a royalty income for every play and every subscriber. Or let’s say you created a patented technology that you license to other companies to use, they will pay you a royalty to use your technology.
#4 Rental income
Rental income is one of the most common forms of passive income. When you own a property and convert it into either commercial or residential property and rent it out, you earn rental income on it. One can either rent it out the way it is or can make some renovations to add value and charge higher rent for the same.
#5 Lucrative Hobbies
Are you good at creating content? Or do you enjoy exploring new places and traveling around the world? Yes, these are the hobbies that can help you create streams of passive income.
Let's say you’re a good content creator, you can generate passive income through writing books or even influencer marketing on social media.
Like traveling? You can start a page that contains travel blogs, guides, and recommendations of all the places you’ve been to.
Such hobbies are some of the most lucrative forms of passive income nowadays and in fact, more and more people are making it their source of primary/active income. Often these are easy to start, fun to do, and very lucrative!
Everyone dreams of getting richer. Creating streams of passive income can only help conquer your dreams faster. Setting up streams of passive income is easy, but requires some time, effort, and maybe even some capital initially. However, setting them up early helps you sit back and enjoy the financial rewards for years to come.
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