Let me ask you this, “How many sources of income do you have?” You may have actually never heard this question before because most people have just one! Perhaps you have a job at a corporate headquarters or a local factory, or maybe you work hard in an environment like a hospital or a veterinary clinic. No matter where you work though, what happens when you lose your job? What is your income? It's zero! No matter if your income was $500k per year or $25k a year, when you lose that job, your earnings suddenly heads down to nothing!
Multiple Pipelines
So how in the world can somebody have more than one income? I mean, you probably work yourself pretty tired by having just one job. Before we get to that though, let's talk about how important it is to have multiple incomes. We have already discussed the effect of losing your job if you only have one income – which obviously is not good. Now, what if you have 10 different sources of income and one of them went to zero? Suddenly, losing that income just isn't that big of a deal.
“Pipelines are your lifelines.”
Alright, you must think I'm crazy at this point. I mean, is it really possible to have 10 different sources of income? In all seriousness, yes, it is entirely possible. But, you have to change your mindset from earned income to passive income.
What Is Passive Income?
Most people know what earned income is. It is where you show up at a job and either earn an hourly rate or a salary. It is what most of us are accustomed to at this point in our lives. We depend on an employer to give us a steady paycheck each week.
Passive income is quite a bit different. Most of the time, there is a lot of work performed in the beginning for little or no money with the hope that it will produce an income over and over again in the future. Authors depend on passive income for their livelihood. They spend months or years writing a book and don't start earning money until it is published and sold. However, if it is a hit and sells for many years in the future, then they just continue to get paid over and over again. The same is true for song writers as well. If their song is a hit, they earn money on the royalties for many years in the future.
So what if you aren't an author or a song writer? How can you earn passive income? The most common way people do it today is through real estate. They purchase a rental property and rent it out to a willing party that agrees to pay you a set amount each month. There are a few obligations on your part, but for the most part, this is a very passive income. Because you might only have to put an hour's worth of effort into each rental, you can easily ramp up your earnings by buying more properties, and thereby increase your sources of income!
Increase Your Pipelines and Grow Wealthy
As you continue to add pipelines (meaning, sources of passive income), your need for that earned income will likely diminish. Let's say that you are purchasing each one of your rentals with cash (which is possible by the way – I have seen it) and you earn $10,000 per year on each one. As you continue to reinvest your earnings and buy more rentals, your passive income begins to increase as well, which then increases your rate of acquiring passive income. Before you know it, you could own 10 properties and will be earning $100,000 each year. With 10 different sources of passive income, your $40,000 per year job suddenly doesn't look that appealing. You could ditch that job, free up 160 hours per week and still grow your income be reinvesting your profits.
Are you building pipelines of passive income?
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We’re currently only on our earned salary, but working hard at the moment to change it! Great post 🙂
Glad to hear that you’re working on adding to your current streams of income. May I ask how you plan to do it? Sorry, I’m just curious! 🙂
Dividend paying growth stocks is one of the easiest ways to earn passive income for the noobie investor I feel and I recommend it to everyone!
Thanks for the comment AG! Yes, dividend paying stocks do produce a passive income, but they can be tricky at times. Some investors get so caught up in the size of the dividend that they forget about the stock price entirely. The stock might be losing value, and therefore losing you money, but because the dividend keeps paying out, they hold onto the stock. Personally, I’d like to see the stock price continue to go up than to get a measly 1% dividend. Keep an eye on both the stock price and the dividend though, and you could win big time.