I was listening to talk radio the other day (because pretty much all music these days is freaking miserable) and there was a guy who was trying to sell his “get rich quick with real estate” program.

I wasn’t very interested in his real estate program, but I was really interested in his philosophy on money, because he summed it up better than I’ve heard it summed up before. He is successful because while everyone else is trying to build savings, he has been building income.

When he said that, it hit me. We are all trying to build income; most of us just do a really crappy job of it.

Savings = Income For the Future

A lot of people who save for retirement are thinking about reaching some magical number. Maybe it’s $1 million. These people think that if they can just save $1 million then they’ll be rich.

But what are they going to do with that $1 million once they stop working?

They are going to use it as income!

Instead of getting paid $50,000 a year from their job, they are going to pay themselves $50,000 a year out of their $1 million of savings. So while they think their goal is to have $1 million, their real goal is to be able to make $50k a year without having to show up at a job. (feel free to substitute different numbers if your goals are different from $1 million or $50k a year)

The secret to retirement is not savings; it’s income!

Income Is The Real Goal

So now that we’ve come to the realization that the goal is not a big pile of money, does this change the approach?

income

photo credit: flickr.com/stevendepolo

To answer that we need to know if it is easier to save $1 million or to generate $50,000 a year of passive income? Neither one is easy, but I think it’s worth trying for the passive income. If I had a trick to get that much passive income today then I’d probably quit my job. However, here are a few places to start:

Dividend Income – If you have been building savings then you probably already have some dividend income. It might not be much, but every bit helps. If you have $10,000 in high yield stocks getting you 4%, then that’s $400 a year on top of any gains (or losses) you might get from the stock price.

Rental Property Income – If you can buy a house with cash and rent it out, you can earn 100% of the rent (minus maintenance costs) as passive income, which is $12,000 a year if your can pull in $1,000 a month. Even if you have a mortgage on a rental property, any positive cash flow is passive income.

A Website – I make about $400 a year with pay-per-click ads on this website, while I have done zero SEO and have very few advertisements. If you take the time to build a website and monetize it more than I do this one, it could definitely give you $1,000 a year or more as long as you make semi-regular updates (which you can pay someone to do). You can also start a successful email marketing campaign which can help generate traffic to your site.

Own a Business – Maybe you can start a business and then pay someone to run it for you. Think about owning a restaurant and just coming in once a month to make sure no one has burned it down. You could own any kind of business as long as you are willing to trust someone else to run it for you while you just pocket all the profits. This one takes the most work, but the earning potential is essentially unlimited.

Building Income is Worth a Shot

So as you can see above, it’s not easy to create a large amount of passive income. And all of the ways to generate income (except potentially owning a business) require that you have money to begin with. In summary, building passive income is freaking hard!

But so is saving millions of dollars.

And while $1 million might run out one day, a steady stream of $50k a year is never going to dry up. You just have to wait for that next payment to come in and you have money to spend yet again.

Readers: What are you doing (if anything) to build yourself some passive income?